HMRC have published a technical note covering the proposals, announced in the Summer Budget 2015, to phase in a new residence nil-rate band (RNRB) from 6 April 2017 when a residence is passed on death to a direct descendant.
The proposed rate bands are:
- £100,000 in 2017-18
- £125,000 in 2018-19
- £150,000 in 2019-20
- £175,000 in 2020-21
It is proposed that from 2021-22 the band will rise in line with the consumer price index (CPI).
Broadly the proposals mean that where part or all of the RNRB might be lost because the deceased has downsized to a less valuable residence, or has ceased to own a residence, the lost RNRB will still be available providing certain qualifying conditions are met (see below). The intention is that an estate will be eligible for the proportion of the RNRB that is foregone as a result of downsizing or disposal of the property as an addition to the RNRB that can be used on death.
If the proposals are enacted the qualifying conditions for the additional RNRB will be broadly the same as those for the RNRB, that is the:
- individual dies on or after 6 April 2017;
- property disposed of must have been owned by the individual 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 has been disposed of, are in the deceased’s estate (this includes assets which are deemed to be part of a person’s estate);
- less valuable property and any other assets of an equivalent value, are inherited by the individual’s direct descendants on that person’s death.
In addition under current proposals the following conditions will also apply:
- the downsizing or the disposal of the property occurs after 8 July 2015;
- subject to the condition above there will be no time limit on the period in which the downsizing or the disposals take place before death;
- there can be any number of downsizing moves between 8 July 2015 and the date of death of the individual;
- downsizing will also include disposing of part of a property (including land occupied and used as a garden or grounds) or a share in it;
- 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 will be the net value i.e. after deducting any mortgage or other debts charged on the property;
- the additional RNRB will be tapered away in the same way as the RNRB if the value of the estate at death is above £2m;
- the additional RNRB will be applied together with the available RNRB, but the total for the two will still be capped so that they do not exceed the limit of the total available RNRB for a particular year; and
a claim will need to be made for the additional RNRB in a similar way that a claim is made to transfer any unused RNRB to the estate of a surviving spouse or civil partner.
The technical note entitled Inheritance Tax on main residence nil-rate band and downsizing proposals provides further details of the proposals and gives some useful examples to illustrate how they will apply. Responses to the note, which are requested by 16 October 2016, will inform the draft legislation to be included in the Finance Bill 2016.
The technical note can be found here.