No penalty to downsizing

The IHT residence nil-rate band (RNRB) is to be introduced from 6 April 2017, and the government wants to ensure that those who wish to downsize to a less valuable property or cease to own their own home will not be discouraged from doing so.

Under the proposals, the main condition to be met is that assets of an equivalent value are left to direct descendants. For example, a widow moves from a home worth £400,000 to a property that is worth £225,000 at the time of her death. She leaves the house to her children along with other assets valued at £500,000. Her full RNRB will still be available together with any unused RNRB of her late husband – potentially £350,000 depending on her date of death.

The same principle applies if a house is sold, maybe because of the owners need to go into residential care. It also applies if the house is gifted. It does not matter how many times a person downsizes, and in this context downsizing also includes disposing of just part of a property.

Although there is no relief unless the property owner’s death occurs on or after 6 April 2017, the downsizing or the disposal of the property itself can be any time after 8 July 2015.