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Main Residence Nil Rate Band


Legislation was introduced in Summer Finance Bill 2015 to provide for an additional inheritance tax main residence nil-rate band if the deceased dies on or after 6 April 2017 and his or her estate includes an interest in a residential property, which has been the deceased’s residence at some point and that residence is left to one or more direct descendants on death. This allowance is in addition to the usual nil rate band allowance of £325,000 and fulfils the Conservative Party’s election promise to increase the inheritance tax allowance to £1 million for married couples and civil partners.

This new allowance will be phased in. In the tax year 2017/18, the new allowance will be £100,000 and then it will then increase by £25,000 for each subsequent tax year until it reaches £175,000 in 2020 / 2021. The allowance will then increase in line with CPI from 2021 to 2022 onwards.

Any unused nil-rate band can be transferred to a surviving spouse or civil partner irrespective of when the first of the couple died, provided the survivor dies on or after 6 April 2017 and the appropriate claim is made.

The qualifying residential interest will be limited to one residential property but personal representatives will be able to nominate which residential property should qualify if there is more than one in the estate. A property which was never a residence of the deceased, such as a buy-to-let property, will not qualify.

There is a precise definition of “direct descendant” and the descendants will have to directly inherit which means the property will have to be left outright to the children or grandchildren, although certain but not all trusts will also qualify for the new allowance. In particular, a discretionary trust will not qualify even if the only beneficiaries are lineal descendants.

If the net value of the estate (after deducting any liabilities but before reliefs and exemptions) is above £2 million, the additional nil-rate band will be tapered away, so it is possible to lose the new relief.

The additional nil-rate band will also be available even when a person downsizes or ceases to own a home on or after 8 July 2015 in certain circumstances.

The new relief is a valuable tool to save inheritance payable by virtue of your death and you should therefore review your wills to check that you will qualify for the relief especially if your wills currently contain trusts or you are considering downsizing in the future. In particular you need to review nil rate band discretionary trusts in your will, trusts of your interest in your home which are intended to give protection against nursing home fees and any trusts for grandchildren to ensure they are not jeopardising your claim for the additional main residence nil-rate band.


For further information relating to the points raised in this article, please contact Amanda Simmonds, Senior Associate.

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.


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