Inheritance Tax Residence Nil Rate Band (RNRB)

The Residence Nil-Rate Band (RNRB) can make it easier for some individuals to pass on the family home. It provides an additional inheritance tax free amount where an individual owning their home leaves it to direct descendants.

Just like the standard Nil Rate Band, any unused RNRB on the first death of a married couple or registered civil partners has the potential to be transferable to the survivor.

The amount of RNRB available to be set against an estate will be the lower of the value of the home, or share, that’s inherited by direct descendants and the maximum RNRB available when the individual died.

The RNRB does come with other conditions and so may not be available or available in full to everyone.

A tapered relief

Where the whole estate, not just the property, is valued at more than £2 million, the RNRB will be progressively reduced by £1 for every £2 that the value of the estate exceeds the threshold. Currently estates of £2.35 million or greater do not benefit from an RNRB (correct as at 2024/25 tax year).

In determining whether the £2 million threshold is breached, it is necessary to ignore reliefs and exemptions. This means that business relief and agricultural relief are ignored when determining the value of the estate for the RNRB even though they are taken into account when calculating the liability to Inheritance Tax.

As the £2 million is based on the value of the estate at the time of death, it does not include any lifetime gifts made by the deceased, even if they were made within seven years of death and are included in the Inheritance Tax calculation.

Direct descendants

The property must be inherited by direct descendants in order to claim the RNRB. Direct descendants include children, grandchildren and their spouses are the most common examples. However, foster, adopted, wards and step-children may also be included.

Brothers, sisters, nephews and nieces of the deceased are not direct descendants. If a property is left wholly to one of these family members, then no RNRB is available.

Where a property is left in part to a direct descendant and in part to, for example, a nephew or niece, the maximum RNRB will be capped at the value of the part of the property left to the ‘direct descendant’.

Main residence

The RNRB applies to a property that’s included in the deceased’s estate and one in which they have lived. It need not be their main residence, and no minimum occupation period applies. If an individual has owned more than one home, their personal representatives can elect which one should qualify for RNRB.

The open market value of the property will be used less any liabilities secured against it, such as a mortgage. Where only a share of the home is left to direct descendants, the value and RNRB is apportioned.

Where Trusts are involved

A home may already be held in trust when an individual dies or it may be transferred into trust upon their death. Whether the RNRB will be available in these circumstances will depend on the type of trust, as this will determine whether the home is included in the deceased’s estate, and also whether direct descendants are treated as inheriting the property.

This is a complex area, and HM Revenue & Customs provides only general guidance, with a recommendation that a solicitor or trust specialist should be consulted to discuss whether the RNRB applies.

Downsizing addition

Estates that do not qualify for the full amount of RNRB may be entitled to an additional amount, the “downsizing addition”, if the following conditions apply.

• The deceased disposed of a former home and either downsized to a less valuable home or ceased to own a home.
• The former home would have qualified for the RNRB if it had been held until death; and at least some of the estate is inherited by direct descendants.

The downsizing addition will generally represent the amount of lost RNRB that could have applied if the individual had died when they owned the more valuable property. However, it will not apply where the value of the replacement home they own when they die is worth more than the maximum available RNRB.

The downsizing addition can also apply where an individual has not replaced a home they previously disposed of – provided they leave other assets to direct descendants on their death.

The deceased’s personal representatives must make a claim for the downsizing addition within two years of the end of the month in which the individual died.

A complex area

We have provided only a very high-level overview of the RNRB and the legislation contains many other rules and regulations that may apply depending on your own personal circumstances.

Professional legal advice should always be sought.