Implications of the main residence nil-rate band on property sales currently exceeding IHT allowance

With over a quarter of property sales this year in excess of the current inheritance tax allowance, what does the introduction of the main residence nil-rate band (MRNRB) mean?


It has recently been reported by Saga Investment Services that 26% of property sales this year were for in excess of £325,000, the current inheritance tax (IHT) allowance.


The introduction of the main residence nil-rate band (MRNRB) was announced by George Osborne last summer and is in addition to the current IHT allowance. The increase in the IHT allowance was highly anticipated, although it is not without its complexities.


The first stage of the MRNRB will be phased in from April 2017, increasing to £175,000 by 2020/21. However, the MRNRB is only attributable to residential property which must have been a residence of the deceased although if the deceased owned more than one property, the executors of the estate are able to nominate which property should qualify. The main residence must be left to direct descendants to qualify, which include children (natural and adopted), grandchildren, step children, foster children but direct descendants does not include siblings or nieces and nephews meaning that individuals or couples without any children of their own will not see any benefit from the changes.


The MRNRB is further complicated when property is left into trust. Trust structures are often used as a form of asset protection, particularly for couples who are in their second marriage with children from previous relationships. The benefit of the MRNRB will apply where the beneficiaries of the trust are direct descendants with an absolute right to benefit from the property but when the trustees have any form of discretion (such as being able to decide who should receive the income or capital from the property) then the MRNRB is not available which could result in more IHT being paid on the estate.


Whilst the introduction of the MRNRB relieved many, particularly as property prices are increasing, it introduces another layer of complexity when considering IHT planning and dealing with the administration of estates. The position is complex and for those with trust structures in their wills, it is worth reviewing your current will arrangements to ensure that the structure is the most tax efficient, bearing in mind the changes from April 2017.

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