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HMRC internal manual

Inheritance Tax Manual

Downsizing: Qualifying former residential interest (QFRI)

As set out at IHT46051, for the downsizing provisions to be in point, there must have been a ‘residential property interest’ (IHTM46011) in a person’s estate on or after 8 July 2015 which has either been disposed of, or downsized from, before the date of death. The legislation refers to this as a ‘Qualifying Former Residential Interest’ or QFRI.

The residential property interest must have been in the person’s estate (IHTM46012) immediately before the disposal, and the disposal must take place:

  • on or after 8 July 2015,
  • after the nominated dwelling-house first became the person’s residence, and
  • before the person dies.

The legislation refers to this as the ‘post-occupation time’ (IHTA84/S8H(4F) ).

Only one QFRI

In the same way that there can only be one QRI in the estate at death, there can only ever by one QFRI for downsizing purposes. A person may have moved homes a number of times, or may have disposed of more than one ‘residential property interest’, but the legislation only provides for there to be a single QFRI.

In many cases this will mean that only one sale, gift, or disposal could be the QFRI. But if more than one residential property interest in the same dwelling-house is disposed of on the same day, all of the disposals can be combined to be a single QFRI.

Example:

A person owns a half share in their home absolutely and has a qualifying interest in possession in the other half (left to them under the will of their pre-deceased spouse). These are separate ‘residential property interests’ but they are in the same dwelling-house. If the entire property is sold in the deceased’s lifetime, there would be a disposal of two separate ‘residential property interests’, but if they are sold at the same time, they can be combined as a single QFRI.

Nominating a QFRI

A residential property interest which has been sold or otherwise disposed of is not automatically a QFRI. The deceased’s personal representatives have to nominate the dwelling-house which they wish to take into account.

Where only one ‘residential property interest’ had been disposed of in that nominated dwelling house on or after 8 July 2015, that single interest will be the QFRI.

Where more than one ‘residential property interest’ had been disposed of in the nominated dwelling-house on or after 8 July 2015, but the disposals were on the same day, all of the disposals taken together are a single QFRI.

Where more than one ‘residential property interest’ is disposed of in the nominated dwelling-house, but those disposals take place on different days, the deceased’s LPRs have to nominate which date is to be taken into account. All the disposals on that nominated date will be taken together as a single QFRI, but the other disposals will not be taken into account.

Example:

If the deceased made gifts of 5% of their home to each of their 4 children and the gifts all took place on the same day, the QFRI would be the 20% of the home gifted. But if the gifts took place on four separate days, the personal representatives would have to nominate which of those dates was to be taken into account and the QFRI would only be the 5% gifted on that nominated date.