Inheritance Tax Act 1984 section 8FC

Downsizing addition: effect: section 8E case

Section 8FC explains how the downsizing addition increases the residence nil-rate band where the deceased still owned a home (or part of one) at death that was left to direct descendants.

• Applies where a person has downsized to a less valuable home and that home (or part of it) passes to direct descendants on death
• The downsizing addition is added to the amount that would otherwise qualify as the residence nil-rate band under the normal home-to-descendants rules
• In practical terms, the formula used to calculate the residence nil-rate amount treats the closely inherited percentage (NV/100) as being increased by the downsizing addition
• The combined effect ensures the estate benefits from both the value of the home left to descendants and the top-up for the previously sold higher-value property