Residence Nil Rate Band – Inheritance Tax

With effect from 6 April 2017, the government brought in a new Inheritance Tax allowance that applies specifically to the main residence.  The Residence Nil Rate Band (RNRB) is in addition to an individual’s own nil rate band of £325,000, which has been frozen until 2020/2021.

The new rules are quite complex and it is therefore worth taking professional advice on whether the RNRB is available and whether any planning can be undertaken to take advantage of the new regime.

How much is it Worth?

Maximum Residence Nil Rate Band (RNRB)

Transfer of Unused RNRB

As with the standard nil rate band any unused RNRB can be transferred to the deceased’s spouse or civil partner, with the effect that the maximum combined IHT threshold for a couple will be a total of £1 million in 2020/2021.

This RNRB can be transferred even if the first of the couple to die did not own a residence and where the first death occurred before 6 April 2017.

Tapering the RNRB

For estates valued at more than £2 million, the RNRB (and any transferred RNRB) will be gradually withdrawn or tapered away.  The RNRB will gradually be reduced by £1 for every £2 that the deceased’s estate exceeds £2 million.

This will mean that in tax year 2017/18 there will be no RNRB available if the deceased holds assets of more than £2.2 million.  This will rise to £2.35 million in 2020/21 when the full £175k allowance is available.

Multiple Properties

The RNRB is only available on one property. If the deceased had more than one residence, his personal representatives can nominate which one is to benefit from the RNRB.

Direct Descendants

In order for the RNRB to be applicable the property, or a share of it, must be left on death to, or for the benefit of, direct descendants.  It must become part of the beneficiaries’ estate as a result of the person’s death.

If a home is left to beneficiaries who are a mixture of direct descendants and other individuals, the value of the home must be apportioned according to the share of the property the direct descendants inherit.

As well as children, grandchildren and other lineal descendants, the definition of a direct descendant includes a stepchild, adopted child and foster child.  It also includes the spouse or civil partner, or a widow/widower or surviving civil partner who has not remarried, of a direct descendant.

The RNRB only applies to Transfers on Death

It will not apply to lifetime gifts where the donor dies within 7 years.

Inheriting the home

The property does not need to be left by the Will, the RNRB also applies on intestacy and where joint property passes by a survivorship clause in the title.


A home, or a share of one, can be held in a Trust before an individual’s death. Or it can be transferred to a Trust on their death.  The availability of the RNRB will depend on the type of Trust.

The allowance may be available in certain circumstances where a deceased had a right to use a property held in trust and on his death, someone receives the property outright.

If a property is left on trust for direct descendants, the RNRB will be available only in very limited circumstances, for example where they have a right to trust income, or the property is left on certain favoured trusts for children, or on a disabled person’s trust.


The family home doesn’t need to be owned on death to qualify.  This is of assistance to those who may have downsized or sold their property to move into residential care.

The RNRB will still be available provided that:

  • the former home would have qualified for the RNRB if it had been kept until death
  • at least some of the estate is inherited by the deceased’s direct descendants

There is no time limit on the period between the disposal and when death occurs.

Planning points

  • Review Wills to ensure they cater for the new rules and that the maximum benefit of the RNRB is achieved.  For example, if the family home is passed to a Discretionary Trust under the terms of the Will no RNRB will be available.
  • The value of an estate should be kept under review in light of the taper threshold of £2m.  The estate for this purpose is valued before taking into account any reliefs or exemptions.
  • Consider carefully whether all assets should be left to the surviving spouse if that would result in the £2 million taper threshold being exceeded on the second death.  Instead consideration should be given to leaving property on trust for the survivor rather than directly to them.
  • Where there is a mortgage over the property try to ensure that the borrowings do not reduce the net value of the home below the amount of the available RNRB.
  • If a residence is to be left on trust for direct descendants, the trust terms must be considered carefully to ensure that the RNRB will be available.
  • Those who wish to rely on the downsizing rules will need to keep careful records of the proceeds of sale or gift so that the ‘lost’ RNRB may be ascertained at the relevant time.