Budget 2015 - IHT :New main residence nil-rate band and the existing nil-rate band

08 July 2015

The current nil rate band for IHT will remain fixed at £325,000 until 5 April 2021. In addition, a main residence band will be introduced from  6 April 2017, starting at £100,000 and increasing every year by £25,000 to a maximum of £175,000 from 6 April 2020, thereafter increasing annually with CPI inflation. If all assets pass to the spouse on the first death, the main residence band can be transferred (like the current nil rate band), and both main residence bands can be used on the second death for :

  • A property which has been or is the main residence of the deceased;
  • If left to a direct descendant  (i.e. a child (including a step-child, adopted child or foster child) of the deceased and their lineal descendants.    

The main residence band is tapered where the value of the estate (after deductions for liabilities but before exemptions and reliefs) exceeds £2m, by £1 for every £2 that the estate net value exceeds that amount.

MHA MacIntyre Hudson comment

Any increase in IHT exempt amounts is welcome, as the current £325,000 nil rate band was last increased in 2009.   There is however a sting in the tail of the proposals, no doubt introduced to reduce the cost of this measure. Those with estates over £2m which comprise business or agricultural property will find themselves penalised as the value of their IHT favoured property may reduce their main residence nil rate bands to nil.

Stranger still, those with estates worth more than £2m who are thinking of making substantial charitable donations on death will also find themselves penalised as the value of exempt gifts is ignored when calculating the tapered amount.