Subject to chargeable transfers in the seven years before death, an inheritance tax nil-rate band is available to reduce inheritance tax on death. This nil-rate band applies regardless of the type of assets held. In particular, there is no separate provision for main residence or assets passing to issue. Any unused nil-rate band can be transferred to a surviving spouse or civil partner. The current nil-rate band is £325,000.
For deaths after 5 April 2017, an additional main residence nil-rate band will be introduced for passing a residence to children and grandchildren on death. A qualifying property will be defined as a residential property which has been the deceased’s residence at some point and is included in their Estate. If there is more than one residence, Personal Representatives will have a right of nomination.
The additional nil-rate band available will be the lower of the maximum amount and the net value of the interest in the property (net of mortgage). The maximum amount will start at £100,000 in 2017/18, rising to £175,000 in 2020/21. Thereafter it will rise in line with CPI.
The additional nil-rate band will be abated for net estates exceeding £2m (before reliefs and exemptions). Abatement will be £1 for every £2 of the excess over £2m. The abatement threshold will also rise in line with CPI from 2021/22 onwards.
Protection will be given where some or all of the additional nil-rate band is lost following downsizing. Precise details of this protection will be made clear following a consultation over the summer.
Any unused additional nil-rate band will be transferrable to a surviving spouse or civil partner in the same way as the main nil-rate band.
Subject to the abatement rules, this provision will allow married couples/civil partners to reduce their inheritance tax liability where their joint estate is worth more than £650,000 and includes a residence which is left to their children and/or grandchildren.