Residence Nil-Rate Band Explained

The residence nil-rate band (RNRB) is an extra inheritance tax allowance — currently up to £175,000 per person — that applies when your home, or a share of it, passes to your children, grandchildren or other direct descendants when you die. It sits on top of the standard £325,000 nil-rate band, so in the right circumstances an individual can pass on up to £500,000 tax-free, and a married couple or civil partners up to £1 million. This guide explains, for England and Wales, how much the allowance is worth, who qualifies, the £2 million taper that claws it back from larger estates, the downsizing addition, and how the figures stack up to reach that £1 million headline.

What is the residence nil-rate band?

Inheritance tax (IHT) is charged at 40% on the value of an estate above the available tax-free allowances. The main allowance is the nil-rate band of £325,000, frozen until April 2030. Introduced in April 2017 and phased in over four years, the residence nil-rate band is a separate, additional allowance created specifically to take more family homes out of the IHT net.

The key difference is that the RNRB is conditional. The ordinary nil-rate band can be set against any assets you leave to anyone. The RNRB only reduces the tax on a qualifying residential property that is inherited by direct descendants. If those conditions are not met, the allowance is simply not available — although your £325,000 band still is.

How much is it worth?

The maximum RNRB is £175,000 per person. Like the main nil-rate band, it is frozen at this level until April 2030. The amount you can actually use is the lower of £175,000 and the value of the property interest passing to direct descendants. So if the share of your home that your children inherit is worth £140,000, your RNRB is capped at £140,000, not £175,000.

Combined with the £325,000 nil-rate band, the RNRB lifts a single person's potential tax-free estate to £500,000. Because both allowances can transfer between spouses and civil partners, a couple can reach £1 million between them. We explain that arithmetic in detail below.

Who qualifies — and the rules on your home

To claim the RNRB, your estate must include a "qualifying residential interest" — broadly, a property that was your residence at some point during your ownership. You do not need to have lived there at the date of death (which helps if you move into care), but a buy-to-let you never lived in does not qualify. If you owned more than one home, your personal representatives can nominate which property the allowance applies to, but only one can be used.

The property, or your share of it, must then be "closely inherited" — that is, pass to direct descendants. It can pass under your will, under the intestacy rules, or by survivorship on a jointly owned home. It can also pass through certain trusts, but the trust type matters a great deal, as covered later.

What counts as a direct descendant

The definition is wider than many people expect, but it has firm limits. Direct descendants include:

• Your children, grandchildren and remoter lineal descendants;
• Step-children, adopted children, foster children and children you were appointed guardian or special guardian for while they were under 18;
• The spouses or civil partners of those descendants, including widows, widowers and surviving civil partners who have not remarried.

It does not include siblings, nieces, nephews, parents or friends. Leaving your home to a brother or a favourite niece, however close the relationship, will not secure the residence nil-rate band. If you want to benefit younger relatives outside the direct line, read our guide on whether you can leave money directly to your grandchildren, who do qualify.

The £2 million taper

The RNRB is aimed at ordinary family homes, not the largest estates, so it is gradually withdrawn from wealthier estates. For every £2 by which your net estate exceeds £2 million, you lose £1 of residence nil-rate band. With the full £175,000 allowance, the band is therefore reduced to nil once the estate reaches about £2.35 million.

Two points often catch people out. First, the £2 million test uses the net value of the estate before deducting reliefs such as Business Property Relief or Agricultural Property Relief, and before the spouse and charity exemptions. So an estate that pays little or no IHT because of business property relief can still lose its RNRB through the taper. Second, the taper applies to each person separately, which means lifetime planning to keep each estate below £2 million — for example through gifting — can preserve allowances that would otherwise be lost. Our guide on how to reduce inheritance tax covers the main options.

The downsizing addition

A common worry is that selling the family home to move somewhere smaller — or into residential care — will throw away the allowance. The downsizing addition exists to prevent that unfairness.

If you sold, gave away or downsized from a more valuable home on or after 8 July 2015, and you leave assets of an equivalent value to direct descendants, your personal representatives can claim an addition broadly equal to the RNRB you would have had on the former property. In other words, you are not penalised for releasing equity, moving to a flat, or funding care costs late in life, provided the value still ends up with your children or grandchildren. The calculation can be intricate, especially where several moves have occurred, so this is an area where professional advice is well worth taking. If care fees are a concern, see what happens to your house if you go into a care home.

How couples reach £1 million

The headline "£1 million tax-free for couples" comes from stacking four allowances. When the first spouse or civil partner dies, anything left to the survivor is exempt, and any unused percentage of both their nil-rate band and their residence nil-rate band transfers to the survivor. On the second death the estate can then use:

• The survivor's own nil-rate band — £325,000;
• The transferred nil-rate band — up to a further £325,000;
• The survivor's own residence nil-rate band — £175,000;
• The transferred residence nil-rate band — up to a further £175,000.

That totals £1 million, provided the home (or downsizing value) of at least £350,000 passes to direct descendants and the estate is below the £2 million taper threshold. Importantly, the transfer works even if the first death occurred before April 2017, when the RNRB did not yet exist — the survivor's estate is still treated as having an unused 100% to bring forward. The transfer is not automatic: it must be claimed, usually within two years of the second death. Our guide to the transferable nil-rate band for couples works through the mechanics.

Trusts, wills and common traps

How your will is drafted can make or break the RNRB. To qualify, the home must pass to direct descendants outright or through a trust that the rules permit. Gifts to a bare trust for a child, or an immediate post-death interest, generally preserve the allowance. By contrast, leaving your home into a discretionary trust — even one where your children are among the beneficiaries — does not count as closely inherited, so the RNRB can be lost. This is one of the most frequent and costly drafting errors, and it often surfaces in older "nil-rate band discretionary trust" wills written before 2017.

If you are considering placing property in trust for the next generation, weigh the IHT consequences carefully and read can I put my house in trust for my children? alongside this guide. Where a will already contains a discretionary trust, a deed of variation within two years of death, or an appointment of assets out of the trust to direct descendants, can sometimes restore the allowance — but the timing and wording are technical and should be handled by a qualified adviser.

Next steps

The residence nil-rate band can save a family up to £140,000 in tax (£350,000 of combined allowance at 40%), but only when the home passes to the right people through a properly drafted will, the estate stays below the taper threshold, and any transfer or downsizing addition is correctly claimed. Because the rules interact with trusts, gifting and the wider inheritance tax framework, and because the figures are frozen until 2030 while property values rise, it is worth reviewing your will and estate plan with a qualified estate planner. Given the value at stake and the number of traps, professional advice is strongly recommended rather than relying on a standard will template.