Inheritance Tax Act 1984 section 8E

Residence nil-rate amount: interest in home goes to descendants etc

Section 8E sets out how to calculate the residence nil-rate amount — the actual tax-free allowance available in respect of a home left to direct descendants — and determines how much, if any, unused allowance can be carried forward to a surviving spouse or civil partner.

• The residence nil-rate band only applies where the deceased's estate includes a qualifying residential interest and some or all of it is closely inherited (i.e. passed to direct descendants).
• For estates at or below the taper threshold, the residence nil-rate amount is the lower of the value of the home inherited by descendants and the default allowance, with any shortfall available for carry-forward to a spouse or civil partner.
• For estates above the taper threshold, the same principle applies but using the reduced adjusted allowance (after tapering), with any shortfall again available for carry-forward.
• Where the home's value exceeds the net chargeable estate, the residence nil-rate amount is capped at the estate value, and any unused portion of the allowance is available for carry-forward.

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