Main residence IHT allowance

Chiltern01

Trying to understand the wording of the new main residence allowance in relation to inheritance tax matters. The wording states that a property is eligible as a “main residence” if The property is part of the estate and individual passing on the property as part of their estate, had lived in the property at some time.
Scenario: a person lived in property A for many years and this property is linked to their business (shop). On retiring the individual moved to a second property (B) and now rents out property A and the business. If property B is in trust and not therfore part of the estate, Is it possible that property A is eligible as the “main residence” to ensure that the full Main residence allowance, currently £100k is available on top of the standard IHT allowance currently £325k.

Yorkshireman99

Chiltern01 wrote: »

Trying to understand the wording of the new main residence allowance in relation to inheritance tax matters. The wording states that a property is eligible as a “main residence” if The property is part of the estate and individual passing on the property as part of their estate, had lived in the property at some time.
Scenario: a person lived in property A for many years and this property is linked to their business (shop). On retiring the individual moved to a second property (B) and now rents out property A and the business. If property B is in trust and not therfore part of the estate, Is it possible that property A is eligible as the “main residence” to ensure that the full Main residence allowance, currently £100k is available on top of the standard IHT allowance currently £325k.

Unless the individual actuallly lives there they cannot claim it is their main resisdence.

Keep_pedalling

Are you sure property B is out of the estate? It would stay in the estate for 7 years after putting it in trust, provided he no longer lived there. Still using it as his primary residence means that 7 year clock does not start until he moves out.

getmore4less

What sort of trust for property B. It may qualify.

You will need to read up on how the RNRB applies to previously disposed of properties.

Tom99

[FONT=Verdana, sans-serif]Property A should qualify if it was a residence of the deceased in the past and is left to a child or grandchild but the value will need to be apportioned as the shop part does not count as a residential property. You also deduct any mortgage so could end up less than £100,000.
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Keep_pedalling

Tom99 wrote: »

[FONT=Verdana, sans-serif]Property A should qualify if it was a residence of the deceased in the past and is left to a child or grandchild but the value will need to be apportioned as the shop part does not count as a residential property. You also deduct any mortgage so could end up less than £100,000.
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It would qualify, if they had moved into sheltered housing or residential care, but I’m not so sure about moving into a property held in a tax dodging trust.

Chiltern01

The clause I was confused about is this bit
“The additional nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.”
Seems to suggest that you don’t need to be living in the residence to get the allowance.
Also
“The qualifying residential interest will be limited to one residential property but personal representatives will be able to nominate which residential property should qualify if there’s more than one in the estate. A property which was never a residence of the deceased, such as a buy-to-let property, won’t qualify.”
Seems to suggest that as long as you lived in the property at some point in the past you can select it as the main residence and claim the allowance.

Tom99

Chiltern01 wrote: »

Seems to suggest that as long as you lived in the property at some point in the past you can select it as the main residence and claim the allowance.

[FONT=Verdana, sans-serif]Yes that's my understanding to, you don't have to choose the final main residence.[/FONT]

Chiltern01

So as long as at the end of 2015 you owned a residence and you have sufficient assets when you die even if you no longer owned the residence at that point, then the effect of the changes are that for a married couple the size of the estate that you can leave to children or grand children before paying any tax is now £850,000 rising to £1m by 2020.