Residential Nil Rate Band – Inheritance Tax Relief Increase

Within the Summer Budget 2015 was the announcement that the government was introducing an additional ‘nil rate band’. The nil rate band, currently at £325,000, is the amount that an individual can have in their estate when they die before inheritance tax (‘IHT’) is chargeable. Anything above this amount will be taxed at 40% for IHT purposes. A spouse who does not use their nil rate band (for example by giving all their estate to their spouse thereby avoiding an IHT liability at this stage due to the spouse exemption) can have their nil rate band transferred to the survivor’s estate.

Following the announcement, there was a flurry of excitement as exclamations of “£1million nil rate band!” were bandied about. While it is possible for a family to benefit from a total of £1million nil rate band, at some point in the future, it is vital that I point out the common misconceptions about this new measure.

Firstly, the figure of £1million as a “new nil rate band” is misleading. What the government propose is for an additional nil rate band of £175,000 per person, but only attributable to their residential property. In other words, if I die with £400,000 in my bank account, there will still be an inheritance tax bill on the £75,000 that is over my nil rate band of £325,000. This is because all my money is in cash. The additional nil rate band is only deductible from the value of a property I own and live in, however, special dispensation has been made for those who downsize while this measure is in place.

Secondly, the government only intends for this relief to apply to direct descendants. Direct descendants will now include children of the deceased, and their lineal descendants.

Thirdly, it is important to remember that this measure is not currently in place. And when it is, it will not immediately be the full £175,000 that many are expecting. It is only in 2017-18 that we will see an additional nil rate band of £100,000, rising in 2018-19 to £125,000. 2019-20 will see it rise to £150,000, and finally in 2020-21 the full figure of £175,000 will come into play.

Fourthly, estates worth in excess of £2million will actually see their additional nil rate band tapered away by around £1 for every £2 that is over that amount. In other words, it may well be lost entirely for large estates.

These are just a few of the deliberate snags that must be considered before we jump for joy. It is very important too that clients do not take the additional nil rate band into serious account while tax and estate planning until this new measure is in place. Clients with ‘nil rate band’ gifts in their Wills will have to review these provisions in line with the changes.

Here at Prince Evans we have experienced Private Client solicitors who can help you with a variety of aspects of tax and estate planning. We also have expertise in Wills, Trusts, Probate and Court of Protection matters. For more information or to book an appointment please contact either myself Georgina Crane at or the head of the team, Partner Ben Davies at