The downsizing addition to the residence nil rate band

The downsizing addition gives back residence nil rate band that would otherwise be lost because the person sold, gave away or moved to a cheaper home on or after 8 July 2015. It is worked out with a five step percentage calculation, it is capped at the value of other assets left to direct descendants, and the personal representatives must claim it, normally within two years of the end of the month of death.

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Why does the downsizing addition exist?

The residence nil rate band is only due where a home in the estate at death passes to direct descendants. Without special rules, someone who sold their house to go into care, moved in with a child or traded down to a small flat would lose some or all of it. HMRC’s Inheritance Tax Manual at IHTM46050 explains that the downsizing provisions reinstate the band lost through the disposal or downsizing, as long as other assets are closely inherited. The rules are in sections 8FA to 8FE of the Inheritance Tax Act 1984 (IHTA 1984).

The addition only replaces band lost because of the move. It does not help where a home is still in the estate but is left to someone who is not a direct descendant, a point HMRC makes at IHTM46051. It also cannot take the total band above the maximum that would have been available had the person kept the former home.

What conditions must be met?

There are two routes, depending on whether the person still owned a home at death.

A home is still in the estate (section 8FA, conditions A to F, IHTM46061). The home at death must be worth less than the person’s allowance, there must be chargeable property other than that home, there must be a qualifying former residential interest disposed of on or after 8 July 2015 that was worth more than the current home, some of the rest of the estate must be closely inherited, and a claim must be made.
No home is in the estate (section 8FB, conditions G to K, IHTM46064). The estate includes no residential property interest, the value transferred is more than nil, there is a qualifying former residential interest, at least some of the estate is closely inherited, and a claim is made.

The former home is called a qualifying former residential interest. Under IHTM46053 it must have been in the person’s estate immediately before the disposal, the disposal must be on or after 8 July 2015 and after the property first became their residence, and it must be before death. A sale counts on completion, not exchange (IHTM46054). The assets left to direct descendants do not need to come from the sale proceeds. HMRC says at IHTM46052 that there is no requirement to trace them.

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How is the lost band calculated?

HMRC’s guidance on downsizing sets out five steps, which follow section 8FE:

Find the band that would have been available at the date of disposal. Use the maximum band for that tax year, treated as £100,000 if the disposal was between 8 July 2015 and 5 April 2017, and add any transferred band from a late spouse or civil partner.
Divide the value of the former home at disposal by the step 1 figure, as a percentage capped at 100%.
If there is a home in the estate, divide its value by the band available at death, again capped at 100%. If there is no home, this is 0%.
Deduct step 3 from step 2. A negative answer counts as 0%.
Multiply the band available at death by the step 4 percentage. The result is the lost band, which the legislation calls the lost relievable amount.

The downsizing addition is then the lower of the lost band and the value of the other assets closely inherited. Form IHT435 asks for the open market value of the person’s interest at the date of disposal. Its notes say a mortgage on the property is deducted from the sale price, but selling costs such as estate agent and solicitor fees are not. The value of the other assets is taken after exemptions, agricultural or business relief and liabilities.

Worked example: a move into a smaller flat

Illustration only. Margaret sold her house for £240,000 in 2019 to 2020, when the maximum band was £150,000, and bought a flat. She dies in 2026 to 2027, when the maximum band is £175,000. The flat is worth £122,500 and everything, including £300,000 of savings, goes to her two sons. She has no transferred band and her estate is under £2 million.

Step	Working	Result
1	Band at disposal	£150,000
2	£240,000 divided by £150,000, capped	100%
3	£122,500 divided by £175,000	70%
4	100% less 70%	30%
5	£175,000 times 30%	£52,500

The savings left to the sons exceed £52,500, so the full addition is due. The band on the flat is £122,500, and with the addition of £52,500 the estate gets £175,000 in total. Had Margaret sold the house and moved into care with no home at death, step 3 would be 0%, step 4 would be 100% and the lost band would be the full £175,000, again limited to the other assets left to her sons.

How does it interact with transferred band and the £2 million taper?

Where the person is entitled to band transferred from a late spouse or civil partner, the transferred amount is added to the figures at both step 1 and step 5. HMRC’s guidance gives the example of a widow who sold a home worth £195,000 when the maximum band was £125,000. With £175,000 transferred, step 1 is £300,000 and step 2 is 65%. At death the maximum is £350,000, so the lost band is £227,500, subject to the cap for other assets left to direct descendants. The rules for claiming the transfer itself are covered in our page on transferring unused bands.

For estates over the £2 million taper threshold, IHTM46067 explains that the final step uses the adjusted, tapered allowance rather than the full one. In HMRC’s example, an estate £100,000 over the threshold has its £175,000 allowance cut to £125,000, so a 100% loss gives an addition of £125,000, not £175,000.

Which disposal counts if there were several moves?

Only one disposal can be taken into account. HMRC’s guidance says that if the person downsized more than once, or sold or gave away more than one home after 8 July 2015, the personal representatives choose which one to use. Several interests in the same property disposed of on the same day are combined into one qualifying former residential interest, but disposals of the same property on different days cannot be added together (IHTM46053). IHT435 note 14 gives the example of a half share given away on one day and the other half on another day: only one of those gifts can be used.

Two special cases are worth knowing:

Gifts with reservation. Giving the home away while continuing to live in it is not a disposal for downsizing purposes, because the home stays in the estate. If the reservation ends during the person’s lifetime, for example when they move out, that is treated as the disposal (IHTM46056).
Homes in a life interest trust. Where the person had a qualifying interest in possession in a trust home, a sale by the trustees, or the ending of the interest during their lifetime, is treated as a disposal by them (section 8HA, IHTM46055).

How and when is the addition claimed?

Unlike the basic residence band, the addition is not automatic. IHTM46051 says the personal representatives must claim it under section 8L and nominate the disposal to be used, and form IHT435 is provided for this alongside the IHT400 account. The claim must be made within two years from the end of the month of death, or within three months of the personal representatives first acting if that ends later (IHTM46064). HMRC may accept a late claim in some circumstances. There is no need to tell HMRC when the move happens, but HMRC’s guidance recommends keeping details of the sale or gift so the personal representatives can find them later. Our page on completing the IHT400 explains how the schedules fit together.

What mistakes come up most often?

Assuming there is no residence band because the person was in a care home and owned no property at death.
Leaving nothing else to children or grandchildren. With no other assets closely inherited, there is no addition, however valuable the former home was.
Using the sale price after agent and legal fees. HMRC wants the market value less any mortgage, not the net proceeds after costs.
Expecting the addition to fix a home left to a sibling, nephew or niece. The lost band must result from the disposal, not from the choice of beneficiary.
Forgetting to treat the band as £100,000 for disposals before 6 April 2017, or forgetting to add transferred band at both steps.
Missing the claim deadline because the estate was believed to be under the nil rate band until late in the administration.

Who counts as a direct descendant for the other assets is explained in our page on direct descendants for the residence nil rate band.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.