HMRC has clarified the workings of a new residence nil-rate band (RNRB) for inheritance tax.
The move is designed to explain the technicalities of situations in which a homeowner downsizes – or relinquishes ownership of – their main property before passing it on to a direct descendant.
It follows a Summer Budget announcement of RNRB which will come into effect from April 2017 as an additional allowance to the current IHT tax-free threshold of £325,000. The measure intends to bypass a situation in which homeowners would otherwise be discouraged from switching to a less valuable property, whether for practical reasons or to pay fees.
The clarification sheds light on timings, explaining there is no consequence to downsizing or sales from the date the RNRB was announced.
Writing for the Accountancy Live website, Pat Sweet said: “It states there would be no limit on the period in which the downsizing or the disposals took place before death and there could be any number of downsizing moves between 8 July 2015 and the date of death of the individual.”
HMRC is now consulting on this and associated issues to identify whether further clarification is necessary. Its technical note includes examples highlighting how the theory works in practice. Respondents have until 16 October this year to register their views and the findings will be presented in the draft 2016 Finance Bill.
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