The Inheritance Tax main residence additional nil-rate band
6 June, 2017
A new additional nil-rate band of £100,000 for Inheritance Tax (IHT) on main residences, when bequeathed to a direct descendent, came into effect at the start of the new tax year in April 2017.
In 2018, 2019 and 2020, this will rise to £125,000, £150,000 and £175,000 respectively, before rising in line with Consumer Prices Index (CPI) in subsequent years.
The change affects estates worth £325,000 or more, meaning that since April 2017 no IHT has been due on estates that include a main residence valued at £100,000 or more and where the total value of the estate is less than £425,000.
For such estates valued between £425,000 and £2 million, IHT is charged at 40 per cent of the value of the estate above the threshold, meaning that an estate with a total value of £525,000 is subject to IHT of £40,000 instead of the current £80,000.
Where an estate has a net value of £2 million or more, the additional nil-rate band is withdrawn at a rate of £1 for every £2 of value above this threshold. This means that the additional nil-rate band will not apply in 2017 to estates worth £2.2 million or more, so the effective threshold remains at the current £325,000. Those worth £2.1 million are only eligible for an additional nil-rate band of £50,000, making the effective threshold £375,000.
Where the deceased has moved to a main residence of lower value or sold their home since 8 July 2015 and assets of equivalent value are bequeathed to direct descendants, the estate is still eligible for the equivalent additional nil-rate band.
Both the standard and additional nil-band rates are transferable from a deceased spouse or civil partner where the second spouse or civil partner has died on or after 6 April 2017, effectively doubling the thresholds.