Many older people sell their family home later in life, either to move to a smaller, more manageable property, or to move into residential care.
So when the government announced the the additional amount that can pass free of inheritance tax on death in July's summer Budget would only be available for those passing on the family home to direct descendants, there were concerns that such individuals would lose the ability to claim the additional allowance if they downsized or sold up altogether.
There were also concerns that older couples might hang on to large family homes to take advantage of the additional allowance, creating potential problems in the housing market through a shortage of family homes.
The government reassured such individuals that downsizing relief would be available in relation to the additional allowance the residence nil rate band (RNRB), meaning that those who sold the family home would still benefit. Last month it published further information on this in a consultation document, Inheritance Tax on main residence nil rate band and downsizing proposals: technical note. Interested parties, such as solicitors, are being asked to comment on the proposals. The comments will be taken into account when drafting the Finance Bill 2016.
Downsizing relief will be available where a property is sold at any time at 8 July 2015 (ie the date the policy was announced). However there is no time limit, so, in theory, someone could sell a house now, live another 20 years without buying another property and still potentially benefit from downsizing relief.
Problems that may arise include the fact that the government says the deceased must have lived in the home at some stage, but it doesn't have to be the main residence. This may be difficult to prove, for example, with a buy-to-let property that an individual lived in some time ago. More clarity may be needed over exactly how long an individual must have lived in a property and what sort of proof will be needed.
The fact that downsizing relief will be available without any sort of time limit as to when the house was owned or for how long would appear to make a mockery of the idea that this is an allowance to help those passing on property. It seems unnecessarily discriminatory against those who, for whatever reason, choose to rent rather than buy, and for those without direct descendants who will not benefit. It would be much simpler to raise the NRB to £500,000 for every individual.