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HMRC internal manual

Inheritance Tax Manual

Estates with conditionally exempt property

IHTA84/S8M applies to estates chargeable to IHT on deaths occurring on or after 6 April 2017, that include a residence that is conditionally exempt and which is left to direct descendants on death. To the extent that the residence is conditionally exempt, it is treated as not closely inherited, so that the appropriate proportion of the residence nil-rate band is available to carry-forward.  

The RNRB that would have been available to the whole (or part) that was exempt, is available to be carried forward to be utilized on the death of the spouse (or civil partner), or if earlier, in the calculation of the recapture charge if the conditional exemption ends.

The legislation also covers the situation where a residential property interest that was wholly, or partially, conditionally exempt has been disposed of or downsized, so that a downsizing addition applies where the conditions are met.

The full provisions can be found in IHTM84/S8M (ss1 to 7).