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April 18, 2016

Inheritance Tax: Downsizing Addition

As discussed in our blog Inheritance Tax - Introduction of Main Residence Nil-Rate Band, from 6 April 2017 homeowners who leave their home to a direct descendent will be entitled to a 'main residence nil-rate band', effectively raising their inheritance tax threshold.

The Finance Bill 2016 provides that where an individual:

a)      downsizes to a property with a lower value; or

b)      disposes of their home so that the estate no longer includes a residential property

a 'downsizing addition' will be available to ensure that the value of the main-residence nil-rate band is not lost.

The downsizing addition will be available provided that assets of an equivalent value of the property disposed of, up to the value of the additional nil-rate band, were left on death to direct descendants.

The amount of the downsizing addition is equal to the lost main residence nil-rate band as a result of the downsizing, limited by the value of the other assets inherited by their children/grand children.

This measure ensures that homeowners will not be discouraged from downsizing or selling their properties on the basis that the amount of the main residence nil-rate band available to them will be reduced.

The change will apply for deaths on or after 6 April 2017 and for downsizing moves or disposals on or after 8 July 2015.

Contact us today to discuss your tax requirements.
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