How to Claim the Residence Nil-Rate Band

When someone dies leaving a property to their children or other direct descendants, their estate may qualify for an extra Inheritance Tax allowance called the residence nil-rate band (RNRB). This guide explains how to claim this allowance when you're administering an estate, including which forms...

Who can claim the residence nil-rate band

You can claim the RNRB if all of the following apply:

The person died on or after 6 April 2017
The estate includes a residence (home) owned by the deceased
The residence is inherited by direct descendants of the deceased

Direct descendants include children, grandchildren, and step-children, but not nieces, nephews, or siblings.

The RNRB can also apply if the deceased downsized to a less valuable residence, or sold or gave away a residence, on or after 8 July 2015.

Understanding how the allowance works

The residence nil-rate band is an additional Inheritance Tax threshold that sits alongside the basic Inheritance Tax threshold of £325,000. The RNRB threshold increases each year in line with inflation based on the Consumer Price Index.

When you're working out whether Inheritance Tax is due on an estate, you add the RNRB to the basic threshold. This creates a higher combined threshold before any tax becomes payable.

Important: The residence nil-rate band only applies to the estate itself. Unlike the basic Inheritance Tax threshold, it does not apply to gifts made during someone's lifetime or transfers into trusts, even if those gifts were made within the seven years before death.

Working out the residence nil-rate band amount

The amount of RNRB an estate receives is the lower of:

The maximum RNRB available in the tax year of death, or
The value of the residence being inherited by direct descendants

If the property is worth less than the maximum RNRB, you can only claim the actual property value. You cannot set any unused amount against other assets in the estate. However, any unused RNRB can be transferred to a surviving spouse or civil partner's estate.

Which forms you need to complete

To claim the residence nil-rate band, you need to complete form IHT435 (Claim the residence nil rate band). You'll also need to have completed form IHT400 (Inheritance Tax account) first, as this shows the total value of the estate.

If you're also transferring unused RNRB from a late spouse or civil partner's estate, you'll need to complete form IHT436 as well.

How to complete form IHT435

Follow these steps carefully:

1. Download and save form IHT435 on your computer (don't try to open it in your web browser)

2. Open the saved form using the latest free version of Adobe Reader

3. Complete it on-screen

4. Print and sign the completed form

The form will not work properly if you try to open it directly in your internet browser. If you have problems opening the form, contact HMRC's online services support for help.

If you use assistive technology such as a screen reader, you can request the form in a more accessible format by emailing different.format@hmrc.gov.uk.

Working out transferred residence nil-rate band

Additional RNRB may be available if the deceased's late spouse or civil partner did not use all of their RNRB when they died. You can add any transferred RNRB to the RNRB available for the current estate.

To work out how much RNRB is available, including any transferable amount, use HMRC's online calculator. You'll need your completed (or partially completed) IHT400 and IHT435 forms, and form IHT436 if you're transferring unused allowance.

The order of applying allowances

When calculating Inheritance Tax, apply the allowances in this order:

1. Take the residence nil-rate band away from the estate value

2. Take the basic Inheritance Tax threshold (and any transferred basic threshold) away from the remaining value

The order you apply these allowances usually makes no difference to the tax due. However, it can affect the amount of unused allowance available to transfer to a spouse or civil partner's estate.

Where to send your claim

Once you've completed form IHT435 (and IHT436 if relevant), send it to HMRC at the postal address shown on their Inheritance Tax general enquiries page.

What if the property is worth less than the maximum RNRB?

The property doesn't need to be worth more than the basic Inheritance Tax threshold to qualify for RNRB. You apply the RNRB to the whole taxable estate, not just to the property value, so the entire estate benefits from this tax-free allowance.

However, if the property is worth less than the maximum available RNRB for that tax year, you can only claim the actual property value. The unused portion cannot reduce other assets in the current estate, but it can be transferred to a surviving spouse or civil partner for use when their estate is administered.

Evidence you may need

When completing form IHT435, be prepared to provide:

Details of the residence included in the estate
Evidence of the property's value
Information about who is inheriting the property
Details of the relationship between the deceased and the beneficiaries (to prove they are direct descendants)
If claiming for a downsized property: evidence of the sale or disposal and details of the replacement property or assets acquired with the proceeds

Sources

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.