Residence Nil-Rate Band

The new Residence Nil-Rate Band
In last year’s Budget the government introduced an exciting new transferable nil-rate allowance in addition to the present £325,000 for individuals. The aim is to take the family home out of inheritance tax for all but the wealthiest families. SWW Trust Corporation is keeping an eye on the changes and intends to deliver its services in view of this new dynamic. It will be a game-changer for many property-owning families, and as such we intend to keep abreast of all developments in the legislation.
Family homes are meant to benefit from extra inheritance tax exemptions from 2017. When a main residence is passed on death to descendants, such as a child or grandchild, the allowance for this asset will be up to £100,000 in 2017-18, up to £125,000 in 2018-19, up to £150,000 in 2019-20, and up to £175,000 in 2020-21.
This should make an effective £500,000 inheritance tax threshold for estates in 2020-21. As with the current nil-rate band (for all estate assets, not just property), any unused allowance can be transferred to a surviving spouse or civil partner which means the effective inheritance tax threshold will rise to £1 million in 2020-21 for married couples.
The new nil-rate band will also be available when a person downsizes or ceases to own a home and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants. As such the new residence nil-rate band should be available in a wide range of estates where residential property has previously been owned.
The technical details of how the additional nil-rate band will support those who have downsized or ceased to own their home will be the subject to further review. What if the client sold up ten years ago, would the value of such a property also be afforded this extra tax allowance? SWWTC will be monitoring this consultation and will advise introducers accordingly.
There will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold. So very large estates are unlikely to benefit from the changes.
This additional nil-rate band will apply if the deceased’s interest in a residential property is left to one or more direct descendants on death. A “direct descendant” will be a child (including a step-child, adopted child or even a foster child) of the deceased and their lineal descendants, according to HMRC guidance: however we must wait for the Bill to pass before we see the full definition of exempt beneficiaries.
The main residence nil-rate band will be transferable where the second spouse dies on or after 6 April 2017 irrespective of when the first spouse died.
The personal nil-rate band will continue to be £325,000 from 2018 to 2019 until the end of 2020 to 2021.
In summary: SWWTC eagerly anticipates further consultation and the passing of the relevant legislation: given the vast potential for this new nil-rate allowance we expect significant changes and further queries to be raised. We will provide guidance for our clients on these developments to ensure that, in working with us, we can apply the new rules for maximum benefit.


  • Rob Hatton says:

    Can I please confirm my understanding of the new additional residence nil-rate band….single person (Mrs X) widowed whose spouse died some years ago and Mrs X subsequently dies after 6th April 2017 leaving whole of her estate to her children;then there will be 2 x £325,000 + 2 x £100,000 – total £850,000 tax free estate to use? before any IHT is due?

    Many thanks

    Heritage Will Writers
    [email protected]
    07809 026196

    • SWW Trust says:

      Hi Rob,

      In short the answer is yes if there is sufficient qualifying residential property passing on second death to qualifying descendants. Further information can be found on HMRC’s website or through the Society’s technical department. Would you like us to pass on the request for you?

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