The Chancellor has proposed changes to Inheritance Tax (IHT) whereby relief from IHT is available by way of a 'Residence Nil-Rate Band' for IHT where a person dies leaving their residence to a direct descendant.
The exemption will begin in 2017/18 and the sum exempted from the value of the property left will start at £100,000, rising by £25,000 annually to £175,000 in 2020/21. The exempt amount will then rise annually in line with the Consumer Price Index. It is given in addition to the current nil-rate band of £325,000, but only applies to residential property in an estate.
Whether or not a property is a residence is a matter of fact, but the relief will depend only on a property having been the residence of the deceased, so those who move into care homes but retain their property will still retain the relief. Where more than one property is owned that has been used as a residence, the executor of the estate will be able to choose to which property the relief applies.
The value of the relief is limited to the value of the deceased's interest in the property.
The relief cannot be claimed where the property has been gifted before death, unless the deceased retains an interest in the property (in which case, the value of the property remains in the estate for IHT purposes).
Any unused proportion of the relief can be transferred to a surviving spouse or civil partner.
The relief will 'taper away' for estates that exceed £2 million.
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