IHT435 and IHT436: claiming the residence nil-rate band

Who needs it

• Executors of someone who died on or after 6 April 2017 whose estate includes a home they owned, left to direct descendants (IHT435).
• Executors where the person downsized, sold or gave away a home on or after 8 July 2015 (IHT435).
• Executors claiming a late spouse's or civil partner's unused residence band (IHT436, with IHT435).

What you need before you start

• The value of the home, and who inherits it.
• The value of the estate, for the taper: total assets less debts and liabilities, before exemptions and reliefs.
• For IHT436: details of the earlier death and how much of that residence band was used.
• The current forms from GOV.UK, completed on screen; they can't be saved part-completed.

How to file IHT435

1. 1Check the home passes to direct descendants as HMRC defines them.
2. 2Work out the estate value for the taper and whether any band is lost.
3. 3Complete IHT435, and IHT436 if transferring a late spouse's unused band.
4. 4Send them to Inheritance Tax, HMRC, BX9 1HT, with the IHT400 where a full account is needed.

Who counts as a direct descendant

HMRC's residence nil-rate band guidance includes children, grandchildren and other lineal descendants, their spouses or civil partners (including widows, widowers and surviving civil partners), step-children, adopted children, children fostered at any time, and children for whom the person was appointed guardian or special guardian while under 18.

Nephews, nieces, siblings and other relatives outside that list are not direct descendants.

The taper

The residence band reduces by one pound for every two pounds the estate is worth above £2,000,000, so it disappears entirely at £2,350,000. HMRC measures the estate here as total assets less debts and liabilities, without deducting exemptions such as the spouse exemption or reliefs such as business or agricultural property relief.

Transferring a late spouse's band (IHT436)

IHT436 claims any residence band left unused by a spouse or civil partner who died first, either before 6 April 2017 or later without using all of it. HMRC works the transfer out as a percentage: the unused amount on the first death divided by the maximum band then, applied to the maximum band when the survivor dies. Tapering on the first estate can reduce the unused amount.

Common mistakes

• Treating nephews, nieces or siblings as direct descendants. HMRC's guidance says they aren't.
• Measuring the taper after the spouse exemption or business relief. HMRC says those aren't deducted for the taper.
• Sending IHT436 without IHT435.
• Missing a downsizing claim where the person moved to a cheaper home or sold one on or after 8 July 2015.