Residence Nil Rate Band

How the RNRB Works

The RNRB is available on top of the standard £325,000 nil-rate band. It applies to the value of your main residence (the home you lived in at death) that is passed to direct descendants. If the home is worth less than £175,000, the RNRB is limited to the actual value of the home passed to descendants. Any unused RNRB cannot be used against other assets — it is specific to the residence. The allowance is available per person and is transferable between spouses and civil partners. If you die and do not own a home, or your home is worth less than the RNRB, or you leave your home to someone other than direct descendants, the allowance is lost (subject to downsizing rules). The RNRB can also be used when you have sold or given away your home before death, provided you meet the downsizing rules. The key point is that the RNRB is designed to ensure that the family home can pass down the generations without triggering an IHT charge, particularly in areas where house prices have risen significantly above the £325,000 threshold.

Taper for Estates over £2 Million

If the total value of your estate exceeds £2 million, the RNRB is gradually withdrawn. The taper reduces the RNRB by £1 for every £2 of estate value above the £2 million threshold. This means the RNRB is completely eliminated once your estate reaches £2,350,000 (for a full £175,000 RNRB). The calculation uses the net estate value after deducting debts and liabilities but before reliefs such as Business Property Relief or Agricultural Property Relief. This creates a marginal IHT rate on estates between £2 million and £2.35 million that is significantly higher than 40%. For example, an estate worth £2.1 million would have its RNRB reduced to £125,000 (£175,000 - (£100,000 / 2)), adding an extra £20,000 to the IHT bill compared with an estate just under £2 million. The taper applies per estate, not per person, so married couples should consider the combined estate value when planning. Strategies to manage the taper include lifetime gifting to reduce the estate value, using trusts, or leaving assets to a spouse or charity. If you expect your estate to exceed £2 million, professional tax planning advice is essential.

Downsizing Rules

The downsising addition ensures that you do not lose the RNRB simply because you sold or downsized your home before death. If you sell or give away your main residence after 8 July 2015 and do not replace it with another home, or downsize to a less valuable property, you can still claim the RNRB on the value of the former home — up to the £175,000 maximum. The downsizing rules apply if: you cease to own a home (or own a less valuable one) and direct descendants inherit some or all of your estate (not necessarily the former home). The downsizing addition is calculated as the RNRB that would have been available on the former home, minus the RNRB available on your current home (if any). The amount is capped at the value of the former home that was sold. Crucially, the downsizing addition only applies if you actually have assets of equivalent value to leave to descendants. If you sold a £500,000 home but spent all the proceeds before death, no downsizing addition is available. You must leave enough value in your estate to cover the intended RNRB. A downsizing declaration must be included in your IHT400 return, detailing the former property and the date of sale. Executors should keep records of all relevant property transactions after 8 July 2015.

Transferability to Spouse

Like the standard nil-rate band, the RNRB is transferable between spouses and civil partners. If one partner dies without using all or part of their RNRB, the unused percentage can be claimed by the survivor's estate. This means a widowed person can potentially have a total RNRB of up to £350,000 (£175,000 of their own plus £175,000 transferred from their deceased spouse). When combined with the standard nil-rate band, this allows a widowed person to pass on up to £500,000 + the transferred RNRB value to direct descendants tax-free. The transfer is claimed by the surviving spouse's executors using form IHT402. There is no time limit for making the claim, but it is best practice to do so as soon as possible. The transfer is available regardless of when the first spouse died (even before the RNRB was introduced in April 2017). However, if the first spouse died before 6 April 2017, the unused RNRB is assumed to be 100% — effectively giving the survivor the full transferred allowance. This rule is particularly valuable for couples where the first spouse died leaving everything to the survivor (the standard approach for most married couples). In that case, 100% of both the NRB and RNRB are available on second death, subject to the taper threshold.

FAQs

Can the RNRB be used if I leave my home to my children in a trust?

Yes, provided the trust qualifies as a "qualifying interest in possession" trust for the benefit of direct descendants. Most modern trusts set up for children will qualify, but older discretionary trusts may not. Specialist trust advice is recommended.

What counts as a "direct descendant"?

Direct descendants include children (biological, adopted, step, or foster), grandchildren, great-grandchildren, and their spouses or civil partners. It does not include siblings, nieces, nephews, friends, or unmarried partners.

Does the RNRB apply to buy-to-let properties?

No. The RNRB only applies to a property that has been the deceased's main residence at some point. Buy-to-let properties, holiday homes, and investment properties do not qualify, even if left to direct descendants.

Is the RNRB frozen or does it increase with inflation?

The RNRB is currently frozen at £175,000 until 2027/28. It was originally scheduled to rise with CPI from 2020/21 onwards, but this was postponed. There is no guarantee of future increases. The government may extend the freeze or increase it in future budgets.