Will Inheritance Tax Be Payable On My Home ?

HMRC has published new guidance on how the residence nil rate band will apply for inheritance tax calculations. Such advice can be accessed at www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band, but the position is summarised below.

The Existing Nil Rate Band

Inheritance tax is charged on the value of a deceased’s estate when they die and the nil rate band is the portion of the estate which is exempt from inheritance tax.  The nil rate band is currently £325,000.00 and, in light of rising property prices, has left many people facing the prospect of leaving an estate liable to a significant tax bill because of the value of their home.

What is the Residential Nil Rate Band?

To address this situation, there will from 6 April 2017 be a new residential nil rate band, to apply to an estate in addition to the existing nil rate band.  It will apply to the estate of an individual if they leave a home to their children or direct descendants when they die.

What is a “Home”?

The home to which the residential nil rate band is applied must have been the deceased’s home, but it doesn’t have to have been the deceased’s main home. It can be any property that the deceased lived in as long as it’s included in their estate. A property that the deceased owned, but never lived in, such as a buy-to-let property is not eligible.

How much is the Residential Nil Rate Band?

The residential nil rate band will be £100,000.00 in 2017-2018, rising by £25,000 in each of the following years to £175,000.00 in 2020-2021.  Thereafter it will rise in line with the Consumer Prices Index.

How is the Residential Nil Rate Band Applied to an Estate?

The lower of either the maximum available residential nil rate band or the value of the property is deducted from the total value of the estate to give the value on which Inheritance Tax must be paid.


HMRC set out the following amongst a number of case studies in their guidance:

An individual dies in tax year 2020-2021 and leaves a home worth £300,000.00 and other assets worth £190,000.00 to his children.

Residential nil rate band for the estate:     £175,000.00
(the lower of £300,000.00 and £175,000.00)

Existing nil rate band for the estate:      £325,000.00

Estate value:        £490,000.00

Less residential nil rate band:    - £175,000.00

Remaining value:      £325,000.00

Less nil rate band:      - £325,000.00

Value on which Inheritance Tax must be paid: £ 0.00

Further Enquiries

If you have any queries or would like to seek advice about inheritance tax or estate planning, please contact Katie Kane at our Belfast office.

Please note that this article is for information only and specific advice should be sought from a solicitor before any action is taken.

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