Can you claim additional Inheritance Tax Relief?

The Residence Nil Rate Band is an additional Inheritance Tax allowance that can be claimed for estates where the deceased owned their own home and left their home, or a share of it, to their direct descendants.

The current additional allowance is £150,000 and will increase to £175,000 in April 2020. This means that in April 2020 married couples and civil partners will potentially be able to claim Inheritance Tax allowances totalling £1million.

However, there are significant limitations to when the additional Residence Nil Rate Band can be claimed:

  1. It can only be claimed if a person’s residence passes to a direct descendent – child, grandchild, step-child, adopted child or foster child. This means that the allowance cannot be claimed by people who do not have any ‘direct descendants’ to whom they can leave their estate.
     
  2. The allowance can only be claimed if a person’s residence is inherited immediately on death. This means that the allowance cannot be claimed if a person leaves their estate to be held in a discretionary trust and as a result can limit the options available for protecting assets for vulnerable beneficiaries.
     
  3. The deceased’s share in the residence must be worth more than the allowance to claim the whole amount. However, there are provisions in place to allow the allowance to be claimed if a person doesn’t own any property at the date of their death but sold their home or moved to a less valuable property on or after 8 July 2015.
     
  4. The Residence Nil Rate Band can only be claimed in full for estates worth less than £2million. For estates over £2million the relief will reduce by £1 for every £2 by which the estate exceeds £2million.

The law and practice referred to in this article has been paraphrased or summarised. It might not be up-to-date with changes in the law and we do not guarantee the accuracy of any information provided at the time of reading. It should not be construed or relied upon as legal advice in relation to a specific set of circumstances.

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