Downsizing and the Residence Nil Rate Band

From 6 April 2017, the government will phase in a new residence nil-rate band, for when a residence is passed on death to a direct descendant. In addition to the Residence Nil Rate Band (RNRB) that can be used upon death, HM Revenue and Customs have confirmed an estate would also be eligible for the proportion of the residence nil-rate band that is foregone as a result of downsizing or disposing of the property.

The new residence nil rate band will be

  • £100,000 in 2017 to 2018
  • £125,000 in 2018 to 2019
  • £150,000 in 2019 to 2020
  • £175,000 in 2020 to 2021 then increasing in line with the Consumer Price Index from 2021 to 2022.

As long as qualifying conditions are met, lost RNRB, due to the deceased having downsized to a less valuable residence or had ceased to own it, will still be available as long as these events happened after 8 July 2015.

The qualifying conditions for the additional RNRB would be roughly the same as those for the RNRB. If the individual dies on or after 6 April 2017, property disposed of must have been owned by them and it would have qualified for the RNRB had the individual retained it. Less valuable property, or other assets of an equivalent value if the property had been disposed of, and which are in the deceased’s estate, will also qualify.

The following conditions would also apply:

  • The disposal or downsizing of the property occurs after 8 July 2015.
  • There would be no time limit on the period in which the downsizing or the disposals took place before death, subject to the date above.
  • There is no limit to the number of downsizing moves between 8 July 2015 and the date of death of the individual.  Disposing of part of a property (including land occupied and used as a garden or grounds) or a share in it is also included.
  • Where a property is given away, assets of an equivalent value to the value of the property when the gift was made must be left to direct descendants.
  • The value of the property is classed as the net value. So after any deduction of mortgage or other debts charged on the property.
  • If the value of the estate at death is greater than £2m, the additional RNRB will be tapered away the same as the RNRB.

The total for the available RNRB and the additional RNRB would be applied together however this will still be capped so that they do not exceed the limit of the total available RNRB for a particular year.

Like most aspect of Inheritance tax planning experienced advice is essential to produce an optimal plan – please email us if you have any queries in this area.