What Is the Residence Nil-Rate Band?

When you die and leave your home to your children or grandchildren, your estate may qualify for an extra Inheritance Tax allowance on top of the standard threshold. This additional allowance is called the residence nil-rate band (RNRB), and it can significantly reduce or even eliminate the Inheritance Tax your family has to pay. Understanding whether you qualify and how much you can claim could save your estate up to £175,000 in Inheritance Tax.

What is the residence nil-rate band?

The residence nil-rate band is an additional Inheritance Tax threshold that became available for deaths on or after 6 April 2017. It applies when you leave your home (or a share of it) to your direct descendants.

For deaths from 2021 to 2026, the maximum residence nil-rate band is £175,000. This comes on top of the standard Inheritance Tax threshold of £325,000, potentially giving a total tax-free allowance of £500,000.

"Direct descendants" means your children, grandchildren, step-children, adopted children, or foster children. It does not include nieces, nephews, siblings, or friends.

Who qualifies for the residence nil-rate band?

To qualify for this additional allowance, the person who died must meet all of these conditions:

• They owned their own home (or a share of one)
• They lived in that property at some point
• They left the home (or their share of it) to direct descendants in their will

You don't have to leave the entire home to direct descendants. If you only leave part of it to them, the available residence nil-rate band is calculated based on the value of that share.

Example of partial inheritance

A woman dies in tax year 2020 to 2021. Her estate includes a home worth £500,000. In her will, she leaves half of the property to her step-son and half to her nephew.

The residence nil-rate band is calculated only on the share left to the step-son (£250,000). However, the actual allowance is capped at £175,000, which is the maximum available for that tax year.

Which properties qualify?

Only one property can qualify for the residence nil-rate band. If the person who died owned more than one home, the executor can choose which one to use for this allowance.

The key requirements are:

• The person who died must have owned and lived in the property at some time
• Buy-to-let properties that were never their residence do not qualify
• The property can be anywhere in the world, but must be within the scope of UK Inheritance Tax
• If you're UK-based for tax purposes, properties anywhere qualify
• If you're not UK-based, only UK properties qualify

What if you sold or downsized your home?

You may still be able to claim the residence nil-rate band if the person who died:

• Sold or gave away their home on or after 8 July 2015
• Downsized to a less valuable home on or after 8 July 2015

In these cases, you can claim a "downsizing addition" to preserve some or all of the residence nil-rate band.

Homes held in trust

If the home was held in a trust before death, or passes into a trust on death, you may still be able to claim the residence nil-rate band depending on the type of trust involved.

How much can you claim?

The amount of residence nil-rate band available is the lower of:

• The value of the home (or share) inherited by direct descendants
• The maximum residence nil-rate band for the year of death (£175,000 for 2021 to 2026)

Working out the home's value

Use the open market value of the home, minus any debts secured against it (such as a mortgage). If the person who died only owned a share of the home, only include the value of their share.

Tapering for large estates

The residence nil-rate band is reduced for estates worth more than £2 million. The allowance decreases by £1 for every £2 the estate exceeds £2 million. This means estates worth £2.35 million or more (in 2025/26) get no residence nil-rate band at all.

How the residence nil-rate band works

The residence nil-rate band is deducted from the value of your entire estate, not just the value of the home. This means all your assets benefit from the tax-free allowance.

Example: Estate with no tax due

A man dies in tax year 2020 to 2021 and leaves to his children a home worth £300,000 and other assets worth £190,000. The estate is worth £490,000 in total.

• Residence nil-rate band: £175,000 (the lower of £300,000 and £175,000)
• Standard threshold: £325,000
• Estate value: £490,000
• Less residence nil-rate band: -£175,000 = £315,000
• Less standard threshold: -£315,000 = £0

No Inheritance Tax is due. The full residence nil-rate band has been used, but £10,000 of the standard threshold remains unused and could be transferred to a surviving spouse.

Example: Home worth less than the maximum allowance

A woman dies in tax year 2020 to 2021 leaving a flat worth £100,000 and other assets of £400,000 to her son, and £500,000 to her husband (which is exempt from Inheritance Tax).

The taxable estate is £500,000 (the amount left to the son).

• Residence nil-rate band: £100,000 (the lower of £100,000 and £175,000)
• Estate value: £500,000
• Less residence nil-rate band: -£100,000 = £400,000
• Less standard threshold: -£325,000 = £75,000

Inheritance Tax is due on £75,000. The unused £75,000 of residence nil-rate band can be transferred to the husband's estate when he dies.

Transferring unused allowance to a spouse

If the person who died didn't use their full residence nil-rate band, the unused amount can be transferred to a surviving spouse or civil partner. This means a married couple can potentially pass on up to £1 million tax-free (£350,000 in combined residence nil-rate bands plus £650,000 in standard thresholds).

To claim transferred allowance, you'll need to complete the appropriate forms when the surviving spouse dies.

Important points about lifetime gifts

Unlike the standard Inheritance Tax threshold, the residence nil-rate band does not apply to:

• Gifts made during your lifetime
• Transfers into trusts
• Assets given away in the seven years before death

These are covered only by the standard £325,000 threshold, which could be partly or fully used up by such gifts, reducing what's available for your estate.

Example: Estate with lifetime gifts

A woman dies in tax year 2020 to 2021 leaving a house worth £200,000 and other assets worth £250,000 to her daughter. In the seven years before she died, she gave £100,000 to her nephew.

The standard threshold (£325,000) must first be set against the lifetime gift of £100,000, leaving only £225,000 available for the estate. The residence nil-rate band of £175,000 is unaffected and applies in full to the estate.

• Estate value: £450,000
• Less residence nil-rate band: -£175,000 = £275,000
• Less remaining standard threshold: -£225,000 = £50,000

Inheritance Tax is due on £50,000.

How to claim

To claim the residence nil-rate band, you need to:

1. Complete form IHT400 (the main Inheritance Tax account form)

2. Complete form IHT435 (to claim the residence nil-rate band)

3. If transferring unused allowance from a deceased spouse, complete form IHT436

You can use HMRC's online calculator to work out how much residence nil-rate band the estate is entitled to. The calculator will help you complete form IHT435.

Sources

• Check if an estate qualifies for the Inheritance Tax residence nil rate band
• Work out and apply the residence nil rate band for Inheritance Tax

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