Inheritance Tax Act 1984 section 8M

Residence nil-rate amount: cases involving conditional exemption

Section 8M adjusts the residence nil-rate amount and any downsizing addition where some or all of the transfer of value on a person's death qualifies for conditional exemption (typically applying to heritage property such as nationally important buildings, works of art, or similar assets).

• Where a qualifying residential interest is conditionally exempt, the residence nil-rate amount is reduced or eliminated depending on the percentage of the interest that is exempt
• If 100% of the qualifying residential interest is conditionally exempt, the calculation switches to different rules — either the downsizing rules or the rules for estates with no qualifying residential interest passing to descendants
• Where other closely inherited property (residential or non-residential) is conditionally exempt, the downsizing addition may be reduced by the lesser of the excess of the addition over non-exempt closely inherited values, and the total conditionally exempt closely inherited values
• Special rules apply when a chargeable event later occurs on the conditionally exempt property, adjusting the tax calculation to account for the residence nil-rate amount and any carry-forward used by a surviving spouse or civil partner

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