This is a new inheritance tax relief on a main residence (not to be confused with the transferable nil rate band allowance which is a completely separate inheritance tax allowance) which will be available for deaths occurring on or after the 6th April 2017 where such residence is closely inherited. The definition of “closely inherited” does include surviving spouses or civil partners and children, however there is a wider definition and can surprisingly include a spouse or civil partner of a direct descendant, or a child who has been adopted by a third party

The claim for the relief is not automatic and its availability will depend upon a number of factors. Greater care now needs to be taken to ensure that Wills are structured correctly as certain clauses in a Will such as discretionary trusts (even where the class of beneficiaries are direct descendants) do not qualify for the relief. Life interests to anyone other than a surviving spouse or civil partner will also not qualify for the relief. Furthermore, the relief is also gradually withdrawn if the value of an estate exceeds two million pounds. This is known as the taper threshold and is made up of the deceased’s own inheritance tax allowance known as the nil rate band (or transferable nil rate band, if on second death between spouses/civil partners) and relief in relation to the residence is withdrawn by £1 for every £2 that the value of the estate exceeds the taper threshold.

Another issue to consider is where on the death of the second spouse/civil partner, the residence passes to children at a specified age beyond 25 years. If the children have not reached the specified age of attainment so that it passes outright to them, the relief is lost, or, if the age of attainment is beyond 25 years of age, the relief is also lost (this is known as a relevant property trust and does not qualify) . If grandparents pass their estate (on second spouses’s death ) to grandchildren the age of attainment cannot be beyond 18 years or the relief is again lost.

There are other complications with the relief where the second spouse/civil partner to die has disposed of the residence in their lifetime or has downsized. The residence nil rate band may be available for a person who downsizes or disposes of the residence completely on or after 8th July 2015 and assets are passed on to direct descendants, but again will depend upon a number of factors.

The maximum value of the relief is initially £100,000 for the tax year 2017/2018 climbing each tax year by £25,000 up to 2020/2021 when it will be £175,000. It will then increase by the consumer price index now frozen until April 2030.

As with the transferable nil rate band, the residence nil rate band needs to be claimed in the Inheritance Tax account and more importantly can also be transferable to the estate of the second spouse or civil partner to die.

Where the transferable residence nil rate band applies, in order to qualify, the first spouse or civil partner to die must have passed the main residence or their share of it to the surviving spouse or civil partner and then down to direct descendants (the main residence can also qualify if it passes by survivorship to the surviving spouse or civil partner outside the terms of any Will or intestacy). Because the residence nil rate band of the first spouse or civil partner to die has not used the residence nil rate band, due to spouse exemption, it is available for transfer to the survivor’s estate, potentially doubling the residence nil rate band exemption. This exemption is in addition to the transferable nil rate band or single nil rate band.