In the July 2015 Budget the Conservative government introduced some new rules which introduce an additional main residence nil rate band (RNRB) for an estate if the deceased’s interest in a residential property, which has been their residence at some point and is included in their estate, is left to one or more direct descendants on death. The new rules came into effect on 6 April 2017.
The value of the RNRB for an estate will be the lower of the net value of the interest in the residential property (after deducting any liabilities such as mortgage) or the maximum amount of the band.
The maximum amount will be phased in over several tax years as follows:
- £100,000 in 2017/18
- £125,000 in 2018/19
- £150,000 in 2019/20
- £175,000 in 2020/21
It is then the current Government’s intention that this will increase in line with CPI from 2021 onwards, as will the existing nil rate band of £325,000.
The qualifying residential interest will be limited to one residential property but personal representatives will be able to nominate which residential property should qualify if there is more than one in the estate. A property which was never a residence of the deceased, such as a buy-to-let property, will not qualify.
As with the existing nil rate band, the RNRB will be transferable where the second spouse or civil partner of a couple dies on or after 6 April 2017 irrespective of when the first of the couple died.