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The downsizing addition (IHTM46050) available to an estate is the lower of the 鈥榣ost relievable amount鈥� (IHTM46062) and the value of the assets which are being closely inherited (IHTM46052). The examples below show how the downsizing addition is calculated.

Example 1: The downsizing addition where the home was worth the same or more than the person鈥檚 former allowance (see Step 1 at IHTM46062)

Jacob sold his home for 拢285,000 in October 2018 to go into residential care. He died in March 2021 with an estate worth 拢500,000. He left half his estate to his son, and half to his nephew.

The residential enhancement in October 2018 is 拢125,000

The residential enhancement in March 2021 is 拢175,000

There is no entitlement to any brought-forward allowance (IHTM46040) on Jacob鈥檚 death.

Step 1 鈥� Jacob鈥檚 former allowance equals the residential enhancement at the date of disposal, 拢125,000

Step 2 - The value of the QFRI (the property sold) is 拢285,000. Jacob鈥檚 鈥榝ormer allowance鈥� is 拢125,000. Expressed as a percentage 拢285,000 梅 拢125,000 = 228%. However, this is limited to 100%

Step 3 - Jacob鈥檚 allowance on death (his default allowance) is 拢175,000. This is multiplied by the percentage in step 2 to give a lost relievable amount of 拢175,000 脳 100% = 拢175,000

The value of the residence at the time of the disposal was more than his former allowance so the whole of the RNRB has potentially been lost. Before he downsized, Jacob鈥檚 estate could potentially have qualified for the maximum RNRB at that time. The lost relievable amount as a result of the downsizing is therefore 拢175,000.

The downsizing addition is the lower of the lost relievable amount (拢175,000) and the value of other assets which are closely inherited. As 拢250,000 of other assets are left to Jacob鈥檚 son, a downsizing addition of 拢175,000 is due.

If instead Jacob had only left 拢100,000 to his son and the rest of his estate to his nephew, the downsizing addition would be restricted to 拢100,000.

Example 2: The downsizing addition where the home was worth less than the person鈥檚 former allowance.

Jason had a flat which he sold for 拢90,000 in May 2019 to move in with his daughter. Jason died in January 2021 with an estate worth 拢600,000, all of which he left to his daughter.

The residential enhancement in May 2019 is 拢150,000

The residential enhancement in January 2021 is 拢175,000

There is no entitlement to brought-forward allowance on Jason鈥檚 death.

Step 1 鈥� Jason鈥檚 former allowance equals the residential enhancement at the date of disposal, 拢150,000

Step 2 - The value of the QFRI (the property sold) is 拢90,000. Jason鈥檚 鈥榝ormer allowance鈥� is 拢150,000. Expressed as a percentage 拢90,000 梅 拢150,000 = 60%.

Step 3 - Jason鈥檚 allowance on death (his default allowance) is 拢175,000. This is multiplied by the percentage in step 2 to give a lost relievable amount of 拢175,000 脳 60% = 拢105,000.

The actual amount of the downsizing addition is the lower of the lost relievable amount (拢105,000) and the value of other assets which are closely inherited. As 拢600,000 of other assets are left to Jason鈥檚 daughter, a downsizing addition of 拢105,000 is due.

Example 3: The downsizing addition where there is brought-forward allowance available at death, but the property disposal took place between 8 July 2015 and 5 April 2017.

Rob survived his wife who died in May 2009. He sold his home for 拢180,000 in September 2015 to move in with his son. He died in October 2017 with an estate worth 拢380,000. He left the whole of his estate to his son.

The residential enhancement in September 2015 is nil, but is treated as being 拢100,000 by IHTA84/S8FE(6)(a)

The residential enhancement in October 2017 is 拢100,000

There was no brought-forward allowance available in September 2015 as the RNRB legislation was not in force.

There is brought-forward allowance of 拢100,000 on Rob鈥檚 death.

Step 1 - Rob鈥檚 former allowance equals the residential enhancement at the date of disposal (拢100,000) plus the difference between the brought-forward allowance at death (拢100,000) and disposal (nil). This is 拢100,000 + (拢100,000 - 拢0) = 拢200,000.

Step 2 鈥� The value of the QFRI (the sold property) is 拢180,000. Rob鈥檚 former allowance is 拢200,000. Expressing this as a percentage 拢180,000 梅 拢200,000 = 90%.

Step 3 鈥� Rob鈥檚 allowance on death (his default allowance) is 拢200,000. This is multiplied by the percentage in step 2 to give a lost relievable amount of 拢200,000 x 90% = 拢180,000.

The actual amount of the downsizing addition is the lower of the lost relievable amount (拢180,000) and the value of other assets which are closely inherited. As 拢380,000 of other assets are left to Rob鈥檚 son, a downsizing addition of 拢180,000 is due.

Example 4: The downsizing addition where there is brought-forward allowance but the property disposal took place after 5 April 2017.

Sam鈥檚 husband left his estate to her on his death in July 2017.聽 She sold her home for 拢104,000 in July 2019 and moved in to residential care. She died in December 2020 with an estate worth 拢800,000, and left half to her daughter and the other half to a friend.

The residential enhancement in July 2019 is 拢150,000

The residential enhancement in December 2020 is 拢175,000

Sam鈥檚 husband had not used any RNRB so there was a brought-forward allowance of 拢150,000 (100% of the residential enhancement) available to Sam at the date of disposal in July 2019.

There is a brought-forward allowance of 拢175,000 on Sam鈥檚 death

Step 1 鈥� Sam鈥檚 former allowance equals the residential enhancement at the date of disposal (拢150,000), plus the brought-forward allowance at disposal (拢150,000), plus the difference between the brought-forward allowance at death and at disposal (拢175,000 - 拢150,000 = 拢25,000). Sam鈥檚 former allowance is therefore 拢325,000 (拢150,000 + 拢150,000 + 拢25,000).

Step 2 鈥� The value of the QFRI (the sold property) is 拢104,000. Sam鈥檚 former allowance is 拢325,000. Expressed as a percentage 拢104,000 梅 拢325,000 = 32%.

Step 3 鈥� Sam鈥檚 allowance on death (her default allowance) is 拢350,000. This is multiplied by the percentage in step 2 to give a lost relievable amount of 拢350,000 x 32% = 拢112,000.

The actual amount of the downsizing addition is the lower of the lost relievable amount (拢112,000) and the value of other assets which are left to direct descendants. As 拢400,000 of other assets are left to Sam鈥檚 daughter, a downsizing addition of 拢112,000 is due.