What do new inheritance tax laws mean for downsizers?

We recently wrote about the new rules for property inheritance that were announced during the summer budget. The new residence nil-rate band (RNRB) , will be phased in from 2017-2021 will reduce the burden of Inheritance Tax for most families by making it easier to pass on the family home to direct descendants without a tax charge. Excellent news.

But, what does that mean for those of us that wish to downsize?

Well.. the Government announced that legislation would be included in the 2016 budget that would protect those who wished to either downsize or cease to own their own home altogether. Again, excellent news. However, how will his actually work.

On the 18th September 2015 the Government released a technical note with further details on their proposals (which we’ve read so you don’t have to!). In a nut shell they recognise that people may wish to downsize to a smaller and perhaps less valuable property or there may be other reasons that the property had to be sold, nursing home costs for example so, in these instances the lost RNRB will still be available – provided that the qualifying conditions were met. Broadly speaking their intention is that the Estate will be eligible for the ‘lost’ RNRB providing the deceased leaves assets of an equivalent value.

The qualifying conditions for the additional RNRB would 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 would also include 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 – direct descendants are the same as those in relation to the RNRB

In addition to the above there are a number of other conditions that apply – you can read the technical note in full here.


Sources, correct at time of writing 21.09.15

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