What is the downsizing addition for the residence nil rate band?

Full answer

The downsizing addition addresses a specific problem with the residence nil rate band -- namely, that the standard relief only applies where a qualifying residence is actually left to direct descendants on death, which would otherwise unfairly penalise people who sensibly downsize or move into care in later life. **Why downsizing would otherwise cause a problem** The standard residence nil rate band requires you to own and leave a qualifying residential property to direct descendants (children, grandchildren, and certain other descendants) on your death. If you sold your family home, for example to downsize to a smaller property, move into rented accommodation, or move into a care home, and later die without owning a qualifying residence at all, you would otherwise lose the residence nil rate band entirely, even though you had lived in a qualifying home for most of your life. **How the downsizing addition fixes this** The downsizing addition allows your estate to claim an amount broadly equivalent to the residence nil rate band that would have been available on your former, larger or more valuable home, PROVIDED that you leave other assets of at least equivalent value to direct descendants in your will -- effectively substituting other inherited assets (cash, investments, a smaller replacement property, or other assets) for the value that would otherwise have been protected by the property itself. **The calculation is based on when you disposed of the property** The amount of downsizing addition available depends on the residence nil rate band rules in force at the time you sold or gave away your previous qualifying home, not necessarily the rules in force when you later die -- this can create a relatively complex calculation, particularly for people who downsized some years before the residence nil rate band existed in its current form or at its current value. **It still requires assets passing to direct descendants** The downsizing addition does not create a brand new, unconditional allowance -- it still requires that assets of sufficient value ultimately pass to direct descendants under your will (or under the intestacy rules if you die without a will), in the same way the standard residence nil rate band requires a qualifying property to pass to descendants. If your estate is instead left entirely to non-descendants (for example, to a sibling, friend, or charity, however worthy), the downsizing addition (like the standard relief) is generally not available. **Claiming the downsizing addition** Executors must actively claim the downsizing addition as part of the Inheritance Tax return process (using the relevant HMRC IHT form), providing evidence of the previous property's value at disposal and confirming how the equivalent value has passed to direct descendants -- this is not applied automatically and requires proper record-keeping of when and for how much the previous property was sold or given away. **Worked example** Someone owned a family home worth £400,000 (well above the maximum residence nil rate band available at the time) but sold it several years before their death to downsize into a £220,000 flat, in order to release some capital and reduce the burden of maintaining a larger property. On their death, they leave the flat plus other assets (cash and investments) to their children, with the total value of assets passing to descendants exceeding what the full residence nil rate band would have covered. Their executors can claim the downsizing addition, based on the relief that would have applied to their original larger home at the time they sold it, effectively restoring the allowance that downsizing would otherwise have put at risk. **Practical tip** If you are considering downsizing, moving into rented accommodation, or moving into care, keep clear records of your previous home's value and sale date, and make sure your will still directs sufficient assets to direct descendants, since claiming the downsizing addition later depends on both good record-keeping now and the right will provisions being in place.

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