Recent research shows that seven in ten people over the age of 50 would consider downsizing their property. These provisions may affect you, a family member or a friend.
Downsizing in the context of the RNRB does not necessarily mean moving to a smaller property, but simply a cheaper one – or giving up ownership of a property altogether.
Helpfully, proposals are in place to avoid any disincentive to downsize or sell up and go into care. However, these proposals are highly complex.
The downsizing addition
When a person downsizes their property, there will be an adjustment to the RNRB.
This is based on the difference between the value of the property that was sold and the new one. The adjustment is referred to as the downsizing addition.
It is not based on the proceeds left over from the purchase of the new property, but a more complex calculation, for which advice should be taken.
When can I claim this downsizing addition?
There are three situations where the downsizing addition can be claimed, following the death of someone affected:
- Selling a property to downsize to a cheaper property, provided that the new property and equivalent value of ‘lost’ RNRB is left to be ‘closely inherited’ i.e. left to direct descendants;
- Selling an only residence and moving to a care or rented home, provided again that the value of the sale proceeds is left to be ‘closely inherited’; and
- A residential property is disposed of by way of a gift. This is where you give away your property and do not retain any interest in it.
As the RNRB increases from £100,000 from 2017/19 to £175,000 in 2020/21, the percentage value of the downsizing addition carried forward will be higher for any sales in an earlier year.
In all scenarios, the following conditions must apply before the downsizing addition is available:
- The deceased dies on or after 6 April 2017;
- The deceased owned a home on or after 8 July 2015 which is no longer owned on death;
- This former home would have qualified for the RNRB if it had been held until death;
- The deceased leaves some estate to their direct descendants; and
- The RNRB available on death is not fully used by other residential property owned by the deceased at the time of death.
Example of how RNRB works
This is best explained by way of an example. Mary sells her house for £200,000 in 2017-18 when the limit was £100,000. Because the property was worth more than the limit, she carries forward 100% RNRB as a downsizing allowance.
She dies in 2020-21 when the maximum available is £175,000. She receives £175,000 downsizing allowance, assuming that the size of her estate doesn’t trigger the taper and she leaves at least £175,000 to her descendants.
Top tip – record keep!
The key point here to make your life easier is record-keeping. Keep hold of any and all important documents to demonstrate that a property has been downsized.
The responsibility for providing evidence supporting a RNRB claim rests upon you.
Private client solicitors currently tend to hold their client’s will, perhaps a couple of codicils, a letter of wishes, a power of attorney and title deeds. But a private client solicitor may not deal with the sale of your property.
Solicitors may now need to add the marriage certificate (to facilitate the transfer of a nil rate band), full details of properties owned in July 2015, property subsequently sold or transferred by gift, completion statements and evidence of ownership.
This is not to mention the registered title before the transfer, the transfer of registered title form, and any declaration of trust that was in place pre-transfer.
You may also need to put in place a formal statement confirming that the property was your residence between specified dates.