If someone dies on or after 6 April 2017 and their estate is above the Inheritance Tax threshold, the estate may be entitled to an additional threshold. The maximum amount of the additional threshold for 2017 to 2018 is £100,000 or the value of the home if this is less.
To qualify, the person who died must have left their home, or a share of it, to their direct descendants.
The estate may also qualify if the person downsized, or sold or gave away, their home after 7 July 2015.
Calculating the additional threshold
You can use the additional threshold calculator to work out how much additional threshold the estate may be entitled to.
The amount will be the lower of the:
- value of the home, or share the direct descendants inherit
- maximum additional threshold available when the person died
If an estate is valued at more than £2 million, the amount the estate is entitled to is reduced or tapered away by £1 for every £2 over £2 million.
To use the additional Inheritance Tax threshold you apply the additional threshold against the whole value of the estate not just the value of the home.
Add to this any unused additional threshold from a spouse or civil partner.
If the person who died was married or in a civil partnership and their partner died before them (even if this was before 6 April 2017) there may be some unused basic and additional threshold to use.
The estate can claim to transfer any unused basic threshold (£325,000). Use the transfer form IHT402.
In the same way, if an estate hasn’t used all the additional threshold, you can transfer anything left over to any surviving spouse or civil partner of the person who’s died. You should use form IHT436.
If the first of the couple died before 6 April 2017 you can transfer 100% of the additional threshold or the value of the house if this was less.
Homes that qualify
Only one home will qualify for the additional threshold. If the person who died owned and lived in more than one home, the executor or administrator can choose which one to use.
If the person who died didn’t own a home because they’d sold or given it away after 7 July 2015, you may be able to claim an additional threshold called a downsizing addition.
If the person who died downsized to a less valuable home that’s below the maximum threshold after 7 July 2015, you may also be able to claim a downsizing addition.
If the home, or the share of the home, was held in a trust before the person died or is transferred to a trust when they die you may be able to claim depending on the type of trust.
To work out the value of the home you should use the open market value of the home, less any debts such as a mortgage. If the person who died only owned a share of the home you need to include the value of their share.
Inheritance Tax is complicated, get in touch if you or your clients needs assistance understanding how the rules will apply to their estate.