Finance Bill

Chartered Institute of Taxation (CIOT) (FB 40)

Clause 9

Inheritance Tax provisions


1. This clause (and those introduced by it) amend the Inheritance Tax (IHT) regime by creating a Residence Nil-Rate Allowance ("RNRA"). After 6 April 2017 if an interest in a home is passed on death to a direct descendant of the deceased, that estate will have an RNRA of, initially, £100,000 (or the value of that interest, if a lower amount), rising to £175,000 by April 2020. The RNRA is added to the existing £325,000 nil rate band to create the value of the estate which can be passed on free of IHT.


2. This new allowance increases complexity, creates two tiers of inheritor and opens up a number of definitional issues. We do not comment on the Government’s specific policy objective but we do have concerns about the additional length of legislation and the burden this places upon HMRC, advisers and taxpayers. We also have some detailed comments on the definitions.

Concerns of the CIOT


3. This measure increases the complexity of the tax system. The consequence of raising the threshold only for a particular category of beneficiaries (direct descendants) and only for a particular constituent element of the deceased’s estate (the family home) is the addition of nine pages of dense legislation to the statute book.

4. Further legislation will be needed. In response to concerns that this measure might artificially discourage downsizing the Government have committed to legislate in Finance Bill 2016 to provide "that where part of the main residence nil-rate band might be lost because the deceased had downsized to a less valuable residence or had ceased to own a residence on or after 8 July 2015, that part will still be available provided the deceased left that smaller residence, or assets of equivalent value, to direct descendants". This is welcome. The concern that the legislation might have discouraged downsizing was justified. However this further legislation will inevitably further complicate the tax system in this area and could potentially increase the revenue cost of the change, to the extent that people downsize who might have done so anyway, despite losing the relief, taking the practical result of the complexity closer to being equivalent to an increase in the threshold.

5. We acknowledge that the Government have been clear that they are aiming for a very specific policy objective with this measure: reducing the burden of IHT by making it easier to pass on the family home to direct descendants without a tax charge. Nevertheless the Government also have an objective of addressing complexity in the tax system and this change runs counter to that.

Scope of the measure (1): Beneficiaries

6. By benefiting only direct descendants of the deceased the new allowance sets a new precedent in the area of IHT.


7. New section 8K(3) makes clear that a step-child is entitled to receive the benefit of the RNRA. We welcome this. We are concerned, however, that the definition of ‘step-child’ is inadequate.

8. The Oxford English Dictionary definition (which is used in the absence of any more specific definition in the legislation) is ‘a child of one’s husband or wife by a previous marriage’. This definition appears to exclude the children of a husband or wife who was not married at the time of the child’s conception, or one who was married but the child is not a child of the person to whom he or she was married.

9. We would encourage the Government to amend the legislation to make clear that the term ‘step-child’ includes any child of one’s husband or wife who is not also one’s own child.

Scope of the measure (2): Defining a qualifying residence

10. The legislation is inadequate in that it sidesteps the problem of how it is to be established that a property has been a person’s residence. There are numerous definitions of residence throughout the tax system and greater clarity is necessary. This is a particularly glaring omission at a time when additional complication is being added into the CGT main residence rules. What evidence will HMRC require of the personal representatives?


11. New section 8H deals with a situation where there are a number of possible qualifying residences. It gives the deceased’s personal representatives the right to nominate the property qualifying for the allowance. Where residential property passes under a qualifying trust, the trustees should be part of that process.

Appendix: The Chartered Institute of Taxation

The Chartered Institute of Taxation (CIOT) is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 17,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

September 2015

Prepared 18th September 2015