The Finance (No2) Act 2015 received Royal Assent on the 18th November.  There is provision within the new legislation for there to be a Main Residence Nil Rate Band available for estates where a main residential property forms part of the estate assets  and that main residence is to be inherited by a lineal descendant.  The Residential Nil Rate Band shall co-exist with an individuals Nil Rate Band for Inheritance Tax (currently £325,000) and the Transferable Nil Rate Band, which together totals up to a maximum amount of £650,000.

 The Main Residence Nil Rate Band is relevant whereby the deceased’s main residence is left to a lineal descendant, which includes children, grandchildren, adopted children , foster children, and step children.

 The Main Residence Nil Rate Band shall be applicable should the deceased’s main residence become inherited by a beneficiary within one of the categories above, under the deceased’s will, through intestate succession, a survivorship clause within the property title deeds.

 There is also scope for the Main Residence Nil Rate Band to apply whereby certain beneficiaries from the above class are to inherit the deceased’s main residence by way of a Trust provision provided for within the deceased’s will, or where the deceased had a liferent or interest in possession of his or her main residence through an Immediate Post Death Interest Trust settled by his or her late spouse for their benefit, or a Disabled Person’s Trust with the deceased having been the disabled beneficiary.

 The Main Residence Nil Rate Band is to commence in April 2017 at £100,000 for tax year 2017/18 and is to increase by £25,000 in each year  to £175,000 in 2020/2021 and thereafter the amount shall be determined by the Consumer Price Index.

 Only one residential property in a deceased person’s estate can qualify for the Main Residence Nil Rate Band.  Should the deceased own more than one residential property, the Executors and Trustees can submit the Inheritance Tax return including only the property which was the deceased’s main residence.

 The Main Residence Nil Rate Band shall also be applicable should the deceased have downsized during their lifetime or should they no longer have owned their main residence as at or after 8th July 2015, provided the deceased left their smaller main residence or assets of the equivalent value to a qualifying beneficiary.

 However there is a catch.  If the net value of a persons estate is above 2 million the Main Residence Nil Rate Band shall be tapered, in that there shall be a withdrawal of £1 for every £2 for net estates above 2 million.

 If you have any queries regarding this matter or of any other matters in respect of Capital Gains Tax, Inheritance Tax or succession planning please contact Caroline Stephen, caroline.stephen@clydeco.com or any of the members of our Private Client team.

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Simpson & Marwick is the trading name of the Residential Property Division of Clyde & Co (Scotland) LLP, a limited liability partnership registered in Scotland under number SO305618 and with its registered office at Albany House, 58 Albany Street, Edinburgh, EH1 3QR, United Kingdom. Clyde & Co (Scotland) LLP is authorised and regulated by the Law Society of Scotland and uses the word "partner" to refer to a member of the LLP, or an employee or consultant with equivalent standing and qualifications. A list of members is available at:clydeco.com.