The Residential Nil Rate Band is to be introduced on the 6th April 2017.
Currently the inheritance tax threshold (IHT) is charged at a rate of 40% on death above the nil-rate band once any debts and the value of any chargeable lifetime transfers have been accounted for. The current inheritance tax exemption is £325,000. In 2015 the chancellor George Osbourne said that an additional ‘main residence’ nil-rate band will be added to the existing £325,000 allowance for a spouse from 6 April 2017. The allowance will start at £100,000 but will increase by £25,000 each year until it reaches £175,000 in April 2020. This means a married couple or Civil partners will have a combined allowance of £1 million before inheritance tax is due. The relief only applies when passing a main residence to direct linear descendants and the availability of the relief will reduce for people who leave more than £2 million behind upon death. A direct descendant is understood to be a child, including a stepchild, adopted child or foster child, of the deceased and their lineal descendants.
Under the proposals anyone who wants to downsize to a smaller property will be eligible for an inheritance tax credit so that even if they sell an expensive property they will still qualify for the new threshold. A qualifying residential interest will be limited to one residential property. A property which was never a residence of the deceased, such as a buy-to-let property, will not qualify.
I advise all persons who believe that they may qualify for this allowance now or in the future to keep safe proof of ownership of your residential property. This may include Land Registry title deeds, Council Tax statements and utility bills with your name on.