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Residence Nil Rate Band: Downsizing Proposals

Following the announcement in the Summer Budget 2015 of the introduction of a Residence Nil Rate Band (‘RNRB’) to help estates pay less inheritance tax when a deceased leaves their family home to their descendants (see Inheritance Tax : Nil-Rate Band changes – July 14th 2015 [1]), H M Revenue & Customs (‘HMRC’) has set out proposals to prevent estates missing out where the deceased decided to downsize, sell or gift their property.

 

The proposals are that the RNRB could still be claimed where the deceased has:

 

  1. downsized, and the less valuable property together with assets of a value equal to the difference between the value of the original property and new property are left to their descendants; or

 

  1. sold or otherwise disposed of their property and the sale proceeds or assets of an equivalent value are left to their descendants.

 

To achieve this, the proposals envisage the introduction of a further set of conditions broadly similar to those announced on the introduction of the RNRB in the Summer 2015 Budget. These are that the death must occur on or after 6th April 2017, the property would have qualified for RNRB if it had been retained and the downsized property or equivalent value must remain in the deceased’s estate and be left to the deceased’s descendants.

 

In addition, the following conditions would also apply:

 

  1. The downsizing or disposal of the property must occur after 8th July 2015, although there are to be no time limits or restrictions on the number of downsizing moves between 8th July 2015 and the date of death;

 

  1. Net estates above £2m will be subject to a similar tapering of the relief as previously announced for the RNRB;

 

  1. Any additional RNRB claimed due to the downsizing or disposal of a property would be in addition to any available RNRB, but the combination of the two could not exceed the limit of the total available RNRB;

 

  1. The executors of the deceased would still need to claim any unused RNRB from the estate of the deceased’s spouse or civil partner.

 

HMRC are currently seeking the views of various represented bodies and professional advisors on these proposals and the practicalities of implementing them.

 

For more information, please contact the partner having responsibility for your affairs, or any partner in the Private Client Department here [2].