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HMRC internal manual

Inheritance Tax Manual

Downsizing Calculations: Where there is no residential property interest in the estate: Conditions

Where a person has disposed of a residential property interest (IHTM46011) on or after 8 July 2015 and there is no residential property interest in the estate at death, a downsizing addition may be due if certain conditions are met. There are five conditions that all need to be met, which are set out in IHTA84/S8FB(2) to (6) as conditions G to K. If all these conditions are met a ‘downsizing’ addition may apply.

There is entitlement to a downsizing addition in calculating a person’s residence nil-rate amount if the following conditions are met:

Condition G

The person’s estate immediately before their death does not include a residential property interest (IHTM46011).

Condition H

The value transferred (VT) (IHTM46012) must be greater than nil.

Condition I

There is a qualifying former residential interest (IHTM46053) in relation to the person.

This means a ‘residential property interest’ (IHTM46011) in a person’s estate that was disposed of on or after 8 July 2015, and before the date of death.

Condition J

At least some of the estate must be closely inherited (IHTM46013).

Condition K

A claim is made for the addition in accordance with IHTA84/S8L(1) to (3).

This means a claim made by the personal representatives, or other persons liable to the tax chargeable, within 2 years from the end of the month in which the death occurs, or (if it ends later) 3 months beginning with the date on which the personal representatives first started to act. In some circumstances HMRC may allow a late claim.

Where these conditions are met it is necessary to calculate the lost relievable amount (IHTM46061). Essentially this is the amount of RNRB that has been lost by the disposal or downsizing. The rules for this calculation are set out in IHTA84/S8FE.

The actual amount of the downsizing addition will be the lower of the lost relievable amount and the value of the ‘remainder’ that is closely inherited

‘Tracing’ - Where downsizing has taken place so that there is a less valuable property in the estate, or no property at all at the date of death, there is no ‘tracing’ requirement of the funds released by the sale.