Downsizing and the residence nil rate band

8th September 2017 | executries , tax

Following the introduction of the residence nil rate band in April this year, HMRC published additional guidance in August on how to apply the additional inheritance tax threshold when someone downsizes, gifts or sells their home before they die.

In order to receive the downsizing addition, the following conditions must apply:

  • the person needs to have sold, given away or downsized to a less valuable home on or after 8 July 2015;
  • the former home would have qualified for the additional threshold if they had kept it until they died;
  • the person's direct descendants must inherit at least some of the estate.

The amount of downsizing addition will usually be the same as the additional threshold that was lost when the former home was downsized, gifted or sold. It will also depend on the value of the other assets left to the direct descendants.

Executors of an estate need to make a claim for the downsizing addition within two years of the end of the month that the person died. HMRC has discretion to extend this in certain circumstances.

Only one move, sale or disposal can be taken into account for the downsizing addition. If there has been more than one disposal, the executors can choose which to use to calculate the downsizing addition.