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Legal News | 1.02.24

Thinking of downsizing?

Estate planning can be a complicated and difficult balance. It is important to weigh the lifestyle you want in retirement against thinking about your affairs after your death.

One such consideration is often the property in which you live. Many people own their own property by the time they retire and intend for their executors to claim the residence nil rate band (RNRB) against their property when they die. The RNRB is an additional inheritance tax-free allowance, on top of the nil rate band of £325,000, of up to £175,000 that can be claimed against the value of your property if you are passing it to direct descendants.  The combined allowances mean a couple can pass on up to £1 million to their children without attracting any inheritance tax.

However, it is also common for people in retirement to decide to ‘downsize’ their property or give up property ownership altogether and move into rented accommodation. They may not want to maintain a larger property as they grow older, or they may wish to free up some money to spend in retirement.

If you are thinking of downsizing or selling and moving into rented or other accommodation, you may be worried that your estate will no longer be able to benefit from the RNRB allowance.

The ‘downsizing addition’ that was introduced in the Finance Act 2016 helps to avoid this problem. In certain circumstances, your executors can claim the downsizing addition in place of, or in addition to, the RNRB to ensure that your estate still benefits from as much of the £175,000 tax-free allowance to which your estate is eligible.

If you would like further information on the downsizing addition, or inheritance tax and estate planning more generally, please get in touch.

 

Posted By Our Wills, Tax, Trusts & Probate Team