RegulationSep 18 2015

HMRC gives more detail on passing on family home

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
HMRC gives more detail on passing on family home

More than two months after it was announced in the summer Budget, HM Revenue and Customs has finally clarified how the new residence nil-rate band will work in practice.

In the summer Budget it was announced an extra residence nil-rate amount will be introduced for deaths on or after 6 April 2017.

This will be phased in over a period of four years so that for deaths in 2017 to 2018 the maximum additional amount will be set at £100,000, increasing to £125,000 for 2018 to 2019, £150,000 for 2019 to 2020 and to £175,000 for 2020 to 2021.

The residence nil-rate band will be indexed in line with the consumer price index from 2021 to 2022 onwards.

HMRC has stated the residence must have been lived in by the deceased “at some stage” but it does not have to have been their main residence.

HMRC stated the residence nil-rate band only applies to the estate on death, so it is not taken into account when calculating the tax payable on any failed potentially exempt transfers or other lifetime transfers.

In a statement, HMRC stated if the residence nil-rate band is not used when the first of a couple dies, or to the extent that it is not used by a transfer on the death of the first of a couple to die, the unused proportion may be transferred to the surviving spouse or civil partner - limited to 100 per cent of the residence nil-rate band available at the survivor’s death.

According to HMRC this applies irrespective of when the first of the couple dies.

The personal representatives of the survivor must make a claim to transfer any unused residence nil-rate band, HMRC stated, and for larger estates, the residence nil-rate band available will be tapered away where the net estate (assets less liabilities but before exemptions and reliefs) exceeds £2m at a rate of £1 withdrawal for every £2 of value over £2m.

Where the first of a couple dies before 6 April 2017, the personal representatives of the survivor will be able to claim an increase in residence nil-rate band of 100 per cent, irrespective of the circumstances that applied on the earlier death.

However, HMRC stated the taper will still apply to the residence nil-rate band that is transferable from a pre-6 April 2017 death, so if the net estate exceeded £2.35m, there will be no residence nil-rate band to transfer.

But those hoping for clarity on what will happen if a person has moved to a smaller abode will have to continue to wait.

There will be a technical consultation in the autumn about how residence nil-rate band should work where a person has downsized or ceases to own a residence after 8 July 2015.

As part of this measure the nil-rate band is to remain frozen at £325,000 until April 2021.

To learn more about this subject, and earn CPD, read FTAdviser’s Guide to the summer Budget.

emma.hughes@ft.com