The Residence Nil-Rate Band
An extra IHT allowance of up to £175,000 when a home passes to children or grandchildren: the conditions, taper, transfer, and trust traps.
What it is, in one sentence
The residence nil-rate band (RNRB) is an extra slice of inheritance tax allowance - up to £175,000 per person - that applies when someone dies leaving a home, or the value of a former home, to their children or grandchildren. It sits on top of the ordinary The Nil-Rate Band & Transferable Nil-Rate Band and, like it, is taxed at 0%. Everything above the combined allowances is generally charged to Inheritance Tax - An Overview at 40% on death.
So a single person who owns a home and leaves it to their children can pass on £500,000 free of IHT: the £325,000 nil-rate band plus the £175,000 RNRB. A married couple or civil partners can, between them, reach £1,000,000, because the RNRB - like the nil-rate band - transfers to the survivor.
The RNRB was introduced by the Finance (No. 2) Act 2015 and lives in the Inheritance Tax Act 1984, ss.8D–8M. It phased in from 6 April 2017 (starting at £100,000) and reached £175,000 on 6 April 2020.
Why it exists
It is, frankly, a political fix. Rising house prices dragged ordinary family homes over the frozen £325,000 nil-rate band, so the government created a targeted top-up that only applies to a home passing down the direct family line. That targeting is the whole story of the rules below: the relief is generous but narrow, and easy to lose if the estate is large or the home is left the wrong way.
The amount and the freeze
The RNRB is £175,000 and is frozen at that level to 5 April 2031 (the freeze set by Finance Act 2025 was extended by a further year at Budget 2025, in Finance Bill 2025-26). It does not rise with inflation, so more estates drift into charge each year - the same "fiscal drag" that affects the The Nil-Rate Band & Transferable Nil-Rate Band.
The conditions
Three things must line up: there must be a qualifying home, it must be closely inherited, and the recipient must be a lineal descendant.
A "qualifying residential interest"
There must be a qualifying residential interest (QRI) in the estate immediately before death (IHTA 1984, s.8H). In plain terms, that is a dwelling that was the deceased's residence at some point while they owned it. A buy-to-let the deceased never lived in does not count. If someone owned more than one qualifying home, the personal representatives nominate which one to use.
The RNRB is capped at the lower of £175,000 and the net value of that home (after any mortgage). A home worth £120,000 gives £120,000 of RNRB, not £175,000 - though the downsizing rules below can sometimes restore the difference.
"Closely inherited"
The home (or a share of it) must be closely inherited - it must pass, on death, to a lineal descendant (IHTA 1984, s.8J). That can happen by will, under the rules of Intestacy - Dying Without a Will, by survivorship on a joint tenancy, or by passing into certain trusts for a descendant (see the trusts section - this is where estates most often trip up).
Who is a "lineal descendant"
Wider than people expect (IHTA 1984, s.8K). It includes:
- Children, grandchildren and remoter issue - and this expressly covers adopted, step- and foster children, plus a child the deceased was appointed guardian or special guardian for while under 18.
- Spouses and civil partners of those descendants - so a child's husband or wife qualifies.
- The widow, widower or surviving civil partner of a descendant who has already died, provided they have not remarried before the death in question.
It does not include nephews, nieces, siblings, parents or, crucially, a spouse or partner in their own right. A gift of the home to a sibling gets no RNRB.
The £2 million taper
Large estates lose the RNRB. Where the net estate exceeds the £2,000,000 taper threshold, the RNRB is withdrawn by £1 for every £2 of the excess (IHTA 1984, s.8D(5)). The threshold is frozen alongside the band.
The "net estate" here is measured before deducting reliefs and exemptions - so business and agricultural property still count towards the £2m for taper purposes, even though they may escape tax themselves. This catches business-owning and farming families in particular.
Worked example - taper. Priya dies with a net estate of £2,300,000, including a home left to her son.
- Excess over £2m: £2,300,000 − £2,000,000 = £300,000.
- Reduction: £300,000 ÷ 2 = £150,000.
- RNRB available: £175,000 − £150,000 = £25,000.
A single person's full RNRB of £175,000 is gone once the estate reaches £2,350,000. Where a transferred RNRB (below) doubles the band to £350,000, it is not fully lost until the estate reaches £2,700,000.
Quick reference
| Feature | Position |
|---|---|
| RNRB amount (per person) | £175,000, frozen to 5 April 2031 |
| Ordinary The Nil-Rate Band & Transferable Nil-Rate Band | £325,000, frozen to 5 April 2031 |
| Single person, home to descendants | Up to £500,000 tax-free |
| Couple, with transfer | Up to £1,000,000 tax-free |
| Taper threshold | £2,000,000 net estate |
| Taper rate | £1 lost for every £2 over the threshold |
| RNRB fully lost (single) | Estate of £2,350,000 |
| RNRB fully lost (transferred) | Estate of £2,700,000 |
| Who can inherit | Lineal descendants: children (incl. adopted/step/foster), grandchildren, their spouses/civil partners |
| Statute | Inheritance Tax Act 1984, ss.8D–8M |
The transferable (brought-forward) RNRB
Like the nil-rate band, any RNRB unused on the first death of a married couple or civil partnership can be carried to the survivor (IHTA 1984, ss.8F–8G). This applies even if the first death was before 6 April 2017, when the RNRB did not yet exist - in that case the first estate simply counts as having used 0% of it, so 100% carries forward.
Two points catch people out:
- It works in percentages, not pounds. The brought-forward amount is that percentage applied to the RNRB at the second death, not the (often lower, or nil) figure at the first. An unused 100% brings forward £175,000 today.
- You must claim it. The transfer is not automatic. The personal representatives claim on form IHT436 within two years of the end of the month of death.
Worked example - transfer. Tom died in 2014, leaving everything to his wife Sara. No RNRB existed then, so his estate used 0% of it - 100% is available to carry forward. Sara dies in 2026 owning a home she leaves to their daughter.
- Sara's own RNRB: £175,000.
- Brought forward from Tom: 100% × £175,000 = £175,000.
- Total RNRB: £350,000, plus two nil-rate bands of £325,000 = £650,000.
- Combined tax-free total: £1,000,000.
The downsizing addition
The RNRB would otherwise punish anyone who sold the family home late in life - to move somewhere smaller, or into care. The downsizing addition (IHTA 1984, ss.8FA–8FE) fixes that: it can restore RNRB that was "lost" because the deceased downsized or sold up, so long as the move happened on or after 8 July 2015 and an equivalent value passes to descendants instead.
The calculation, in outline:
- Work out the RNRB the former home would have attracted.
- Compare it with the RNRB actually available on the home owned at death (nil, if none is owned).
- The shortfall becomes the downsizing addition, capped at the maximum RNRB.
- It is only given to the extent that at least that value in other assets is closely inherited.
Worked example - downsizing. Margaret sold her £350,000 home in 2022 and moved into a care home, owning no property when she dies in 2026. Her £500,000 estate passes to her children.
- Former home would have given the full £175,000 (its value exceeded the band).
- RNRB on a home at death: £0 (she owned none).
- Downsizing addition: £175,000 − £0 = £175,000.
- Allowed, because more than £175,000 passes to her children.
Without this rule, Margaret's estate would have lost the entire RNRB simply for doing the sensible thing.
How trusts interact with the RNRB
This is where careful will drafting earns its fee. The RNRB depends on the home being closely inherited, and whether a trust achieves that turns on the type of trust. See Understanding Trusts - A Plain-English Guide for the underlying structures.
Structures that preserve the RNRB. The descendant must become beneficially entitled to the home or its value:
- Absolute (outright) gifts to a lineal descendant - the cleanest route.
- Immediate post-death interests (IPDIs) and other qualifying interests in possession in favour of a descendant. Because the life tenant is treated as owning the trust assets for IHT, the home is "closely inherited" by them. This is the basis of the Interest in Possession (IIP) and Flexible Life Interest Trust (FLIT) products, and of a life interest giving a descendant the right to occupy the home.
Structures that usually do NOT preserve it. Most discretionary trusts break the link. Because no descendant has a fixed entitlement, the home is not closely inherited, and the RNRB is lost - even if every possible beneficiary is a child or grandchild. Discretionary will trusts fall inside the The Relevant Property Regime, and the Discretionary Trust of Residue and a nil-rate band discretionary trust sit here. If preserving the RNRB matters, a discretionary trust of the residence is the classic trap.
One escape hatch: appointing the property out of a discretionary will trust to a descendant absolutely within two years of death can, under IHTA 1984, s.144, be read back as if the will had made that gift - restoring the RNRB. It needs deliberate action by the trustees.
Special trusts that DO qualify. A handful of trusts for descendants are treated as closely inheriting, by statute:
- Bereaved minor's trusts and 18-to-25 trusts (IHTA 1984, ss.71A and 71D) - see Understanding Trusts - A Plain-English Guide for how these work.
- Disabled person's trusts (IHTA 1984, s.89) - the basis of the Disabled Person's Trust.
These give protective, discretionary-style management and keep the RNRB, which is exactly why they exist.
Order of application alongside the nil-rate band
The RNRB is ring-fenced to the home and is applied first, against the value of the qualifying residential interest. The ordinary The Nil-Rate Band & Transferable Nil-Rate Band (and any transferred nil-rate band) then covers the rest of the estate, and 40% bites on anything left.
Two consequences follow. First, the RNRB is genuinely "use it or lose it": it cannot be spent on non-residential assets, so an estate with no closely-inherited home wastes it entirely. Second, when checking whether an estate pays tax at all, run the figures in this order - RNRB against the home, then nil-rate band against the remainder - because it changes what, if anything, is chargeable. For how the nil-rate band, its transfer, and the main exemptions fit together, see The Nil-Rate Band & Transferable Nil-Rate Band and Inheritance Tax Exemptions & Reliefs.
This page is general information about UK inheritance tax, not legal or tax advice. RNRB thresholds, the taper, and the freeze dates change with each Finance Act; always confirm the current figures and take advice before acting.
Related
- Inheritance Tax Exemptions & ReliefsGeneral guidanceThe IHT exemptions and reliefs that cut or remove the tax - spouse, charity, lifetime gifts, and Business and Agricultural Property Relief.
- Inheritance Tax - An OverviewGeneral guidanceHow UK inheritance tax works: what's in the estate, the rates and bands, lifetime gifts and the 7-year rule, trusts, reliefs, and how it is paid.
- The Nil-Rate Band & Transferable Nil-Rate BandGeneral guidanceHow the £325,000 IHT nil-rate band works, how it is used up, and how a surviving spouse claims the unused percentage of the first to die.