The Summer Finance Bill sets out the changes to Inheritance Tax which were announced by the Chancellor in his Summer Budget. The Bill introduces an additional Main Residence Nil Rate Band (the Band) which will be introduced in stages from April 2017 until the full Band of £175,000 comes into force in April 2020. The Band will be in addition to the existing Nil Rate Band of £325,000.

When is the Band available?

The Band will apply when a qualifying residence (the qualifying residential interest) is passed on death to a direct descendant of the deceased (this includes a child, step-child, adopted child, fostered child or grandchild). Lifetime gifts of property to the next generation will not qualify and it would appear transfers into trust will also not qualify.

If the value of the residence is less than a person's total Band, the Band is limited to the value of the residence. Any unused portion of the Band can, however, be transferred to a surviving spouse or civil partner.

Any person who wishes to downsize or ceases to own a qualifying residence on or after 8 July 2015, will be able to offset the allowance against assets of an equivalent value passed on death to their children or grandchildren.

What is a 'qualifying residential interest'?

The property to which the Band will apply must have been the main residence of the deceased "at some point" and which would have formed part of their estate.

If there is more than one qualifying residential interest, only one property can receive the advantage of the Band and the deceased's Executors can nominate which one.

When does the Band not apply?

The Band does not apply to estates worth more than £2million in value (before any exemptions or reliefs). Section 8F of the Bill also provides that an estate does not qualify for the Band if:-

• it does not include a qualifying residence; or
• if none of that residence is passed on to direct descendants.

For more information on the main residence Nil Rate Band or would like to begin inheritance tax planning, please contact our experienced team who will be happy to help.

Photo by Naypong, courtesy of freedigitalphotos.net