The residence nil rate band: how it works and what it could save you

The residence nil rate band (RNRB) is an extra inheritance tax allowance that applies when a family home is left to direct descendants. It sits on top of the standard nil rate band of £325,000 and is worth up to £175,000 per person. For a married couple or civil partners, the combined allowances can take £1 million out of the inheritance tax calculation before any tax is owed.

The rules are more complicated than that headline suggests. The RNRB applies only in certain circumstances, tapers away for larger estates, and has several edge cases that catch families out. This guide explains how it works, who qualifies, and what practical steps matter when an estate involves a family home.

The headline figures

Two allowances combine to shelter an estate from inheritance tax.

The nil rate band (NRB) is £325,000 per person. This applies to any estate, regardless of what it contains.

The residence nil rate band (RNRB) is up to £175,000 per person. This applies only when a home that was lived in at some point by the deceased passes to a direct descendant.

For an individual, the combined allowance can be up to £500,000.

For a married couple or civil partners, any unused allowance transfers to the survivor. If both allowances are fully available, the second estate has a combined allowance of up to £1 million.

Both the NRB and the RNRB are frozen at their current levels until 5 April 2031, confirmed by the 2025 Autumn Budget. This is a deliberate revenue-raising measure. As property values rise and the thresholds stay still, more estates are pulled into the tax each year.

What qualifies as a "residence"

The RNRB applies to a residence that the deceased owned and lived in at some point while they owned it. It does not have to be the main residence, and there is no minimum period of occupation.

A property that was only ever a rental investment and never lived in by the deceased does not qualify. A property that was once a main home but had become a second home by the time of death does qualify, provided the deceased lived in it at some stage during ownership.

Only one residence can claim the relief. If the deceased owned multiple qualifying properties at death, the executors choose which one the RNRB applies to.

A deceased who had moved into a care home before death can still claim the RNRB on their former home, provided they owned and lived in it at some point.

Who counts as a direct descendant

This is the single most important test. The home must pass to a direct descendant. The definition is specific:

• Children (including stepchildren, adopted children and foster children)

• Grandchildren and further lineal descendants

• The spouse or civil partner of any direct descendant (if not remarried at the time of the deceased's death)

It does not include siblings, nephews, nieces, friends, or unmarried partners.

A surviving widow or widower of a child is included, as long as they have not remarried. This covers the common case of a daughter-in-law continuing to inherit when the son has predeceased the parent.

The property has to be "closely inherited", which in practice means it passes to the descendant directly, through the will or intestacy, or via a qualifying trust such as a bereaved minor's trust or an immediate post-death interest trust.

The £2 million taper

The RNRB is tapered for estates with a net value above £2 million.

For every £2 the estate exceeds £2 million, the RNRB is reduced by £1. At a net estate value of £2.35 million, the full £175,000 RNRB is tapered away to nothing.

The taper is applied to the net estate value (gross estate minus liabilities but before reliefs). It catches out more families than people expect, particularly in London and the South East where a modest home plus pension plus investments can push an estate over £2 million without the family feeling wealthy.

Two notes on the taper:

The taper is based on the first-death estate and the second-death estate separately. A couple with a joint estate of £2 million during their lifetime does not automatically lose the relief. The question is the value of each estate when the transfer happens.

The taper threshold of £2 million is itself frozen until April 2031, so more estates will be tapered over time as asset values rise.

Carrying forward unused allowance

When a spouse or civil partner dies first and does not use all of their RNRB, the unused proportion transfers to the surviving spouse's estate. This is the mechanism by which a married couple can reach the £1 million combined threshold.

Importantly, the transfer works even if the first death happened before 6 April 2017, when the RNRB was introduced. In those earlier cases, the deemed unused RNRB is £100,000 (the level of the allowance when it was first introduced, though the percentage transfer is what matters). In practice, most surviving spouses who were widowed before 2017 can still claim the full additional RNRB on second death.

The executor of the surviving spouse's estate has to claim the transferable allowance, using form IHT436. It is not applied automatically.

Downsizing relief

If the deceased sold their home, downsized, or moved out altogether before death, they (or their estate) can still claim the RNRB as long as certain conditions are met.

The sale or move must have happened on or after 8 July 2015. Assets of at least equivalent value must be passed to direct descendants from the estate. Detailed records of the property and its value at the time of sale are needed.

This relief is sometimes called "downsizing addition" in HMRC documentation. It was designed to avoid penalising people who sold their home late in life to fund care, move closer to family, or free up capital.

A worked example

To make the allowances concrete, consider a typical case.

Margaret is 78, widowed in 2019. Her husband left everything to her, which included using none of his NRB or RNRB. She has two children and owns her home outright, valued at £400,000. She also has £250,000 in savings, investments and personal effects, giving a total estate of £650,000.

On Margaret's death, her available allowances are:

• Her own NRB of £325,000

• Her late husband's unused NRB of £325,000 (transferred)

• Her own RNRB of £175,000 (available because her home passes to her children)

• Her late husband's unused RNRB of £175,000 (transferred, even though he died before 2017)

That is a combined allowance of £1 million. Her estate of £650,000 falls entirely below the allowance and no inheritance tax is payable.

If Margaret's estate had been £1.2 million, her executors would owe 40% inheritance tax on £200,000, which is £80,000.

Common ways the RNRB is lost

A surprising number of estates lose some or all of the RNRB unnecessarily. The main patterns are:

No direct descendants. An individual with no children, grandchildren, or stepchildren who leaves everything to a partner, sibling, or friend cannot claim the RNRB. This is the single most common reason the relief is lost.

Property passes to the wrong person. A will that leaves the home to a sibling, nephew, or niece does not qualify. A will that leaves the home to an unmarried partner who is not a direct descendant does not qualify.

Wrong trust structure. Some trust structures in a will (notably discretionary trusts where the direct descendants are just one class of potential beneficiary) can cause the RNRB to fail. This is worth getting checked with a solicitor.

Taper. Estates above £2 million lose the RNRB on a pound-for-pound basis. Estates above £2.35 million lose it entirely.

No qualifying residence. A lifelong renter, or someone who owned only investment property never lived in, cannot claim the RNRB.

Pensions: a big change coming

This is a major shift that will reshape how the RNRB interacts with estates.

From 6 April 2027, defined contribution pensions will be included in the estate for inheritance tax purposes. Under the current rules, most pensions pass outside the estate and are not counted towards the NRB or RNRB thresholds.

After the change, pension values will be added to the rest of the estate. Many families who currently fall below the £2 million taper threshold will be pushed above it by the inclusion of pension assets, potentially losing some or all of their RNRB.

This is not yet in effect. It takes effect for deaths from 6 April 2027 onwards. Families with significant pension holdings should factor this into planning conversations with a solicitor or financial adviser before the change takes effect.

How to claim the RNRB

The RNRB is claimed by the executor or administrator as part of the inheritance tax return.

For most estates, this involves completing form IHT400 and the relevant schedules, including IHT435 (the RNRB claim form) and IHT436 (the transferable allowance claim form for a surviving spouse).

For a small estate below the threshold, a simpler form IHT205 or the online service may be used.

HMRC does not apply the RNRB automatically. The executor has to claim it. Checking eligibility is one of the first tasks when a property is involved in the estate.

For the wider context on what is involved in administering an estate, see our guides on what is probate and how long does probate take in the UK.

Practical steps

Five things worth checking when an estate includes a family home.

First, confirm the property qualifies as a residence (owned and lived in at some point).

Second, confirm the beneficiaries are direct descendants under the HMRC definition. Nieces, nephews, siblings, and unmarried partners do not qualify.

Third, get an accurate valuation of the whole estate, not just the home. The £2 million taper applies to the net estate value.

Fourth, check whether the deceased had a predeceased spouse. If so, the transferable RNRB may add significant relief and should be claimed.

Fifth, look at the will structure carefully. A poorly drafted trust can cause the RNRB to fail even when the family intended the home to pass to descendants.

A probate solicitor will cover all of this as part of estate administration, but understanding the framework helps families make informed decisions and ask the right questions.

If this is more than you can manage

The inheritance tax position is only one part of what has to happen after a death. Banks, pension providers, insurers, utilities, subscriptions and government agencies each have their own process, and each one means explaining the death again.

Legacy Trail finds the accounts the deceased held and notifies each provider centrally, so you can focus on the decisions that matter (like the inheritance tax position of the estate) rather than the admin.