Residence Nil Rate Band: The Extra £175,000 for Leaving Your Home

The residence nil rate band (RNRB) is an extra slice of inheritance tax allowance — up to £175,000 per person — that applies when a home you have lived in is left to your children, grandchildren or other direct descendants. It sits on top of the standard £325,000 nil rate band, so a single person leaving a home to their children can pass on £500,000 tax-free, and a married couple or civil partners can combine to £1 million.

It is not automatic. The RNRB has to be claimed, the property has to be "closely inherited", and it is withdrawn at £1 for every £2 by which the estate exceeds £2 million.

Key points

• The RNRB is worth up to £175,000 of allowance per person, on top of the £325,000 nil rate band. At the 40% inheritance tax rate, that is up to £70,000 of tax saved.
• The allowance is capped at the value of the home (net of any mortgage) — a £120,000 house gives £120,000 of RNRB, not £175,000.
• The home must pass to direct descendants: children, grandchildren, step and adopted children, and their spouses. Siblings, nieces and nephews do not count.
• The RNRB tapers away above a £2 million net estate and disappears completely at £2.35 million (£2.7 million where a full transferred band is also in play).
• Unused RNRB transfers to a surviving spouse or civil partner, and a downsizing addition protects the allowance if you sold or gave away a home on or after 8 July 2015.

Who qualifies for the residence nil rate band

Two conditions have to be met: the property condition and the inheritance condition. Miss either and the whole £175,000 is lost.

The property condition

The property must be a dwelling that the deceased lived in as a residence at some point while they owned it, and it must form part of their estate for inheritance tax purposes. A few consequences follow from that wording:

• It does not have to be the main home, and it does not have to be occupied at the date of death. Someone who moves into a care home but keeps the house still meets the property condition.
• A buy-to-let that was never lived in by the owner does not qualify. Nor does a plot of land, a holiday let that was never a residence, or a property held in a trust the deceased had no qualifying interest in.
• Where more than one property qualifies, the personal representatives nominate one. Only one property can carry the RNRB.
• The relevant figure is the net value — the open market value at death less any mortgage or secured loan on it.

Inheritance tax is a UK-wide tax, so the RNRB works identically in Scotland, Wales and Northern Ireland. What differs in Scotland is succession law: legal rights give children a claim over the moveable estate, which can change who ends up inheriting what, and therefore whether the home is closely inherited in practice.

The inheritance condition

The home must be "closely inherited" — in other words, it must pass on death to one or more direct descendants. That can happen under a will, under the intestacy rules, by survivorship on a jointly owned property, or through certain trusts.

The trust point is where estates most often come unstuck. A home left to a discretionary trust — even one whose beneficiaries are only the children — is not closely inherited, because no descendant has an absolute or qualifying interest. The RNRB is lost. Trusts that do preserve it include a bare trust for a descendant, an immediate post-death interest (IPDI) for a descendant, a bereaved minor's or 18-to-25 trust, and a disabled person's trust.

Where a will has already left the home to a discretionary trust, an appointment out of the trust to a direct descendant within two years of death can be read back to the date of death, restoring the RNRB. That is a technical fix with tight deadlines, so it is one to raise with the executors early.

Who counts as a direct descendant

HMRC's definition of direct descendants is wider than "children", but it stops well short of family in general.

So leaving the house to a son-in-law works. Leaving it to a favourite nephew does not. And leaving a share of the home to a spouse is exempt from inheritance tax anyway, but it does not use the RNRB — which is exactly why the allowance is transferable (see below).

Worked example: a single homeowner

Fiona dies in 2026/27 leaving an estate of £900,000, including a mortgage-free home worth £400,000. Everything goes to her two children.

• Nil rate band: £325,000
• RNRB: lower of £175,000 and the £400,000 home value = £175,000
• Total allowances: £500,000
• Taxable estate: £900,000 − £500,000 = £400,000
• Inheritance tax at 40%: £160,000

Without the RNRB the bill would have been £575,000 × 40% = £230,000. The extra allowance is worth £70,000 here — 40% of £175,000.

The £2 million taper

The RNRB is reduced by £1 for every £2 by which the net value of the estate exceeds £2 million. The taper threshold is a cliff-edge in slow motion: every £2 of estate value above £2m costs £1 of allowance, which at 40% means an effective marginal rate of 60% on that slice.

Two details matter enormously:

• The £2m test uses the net estate before reliefs and exemptions. Business Property Relief and Agricultural Property Relief are added back for this test, and so is the value passing to a spouse or to charity. A farming estate can be nil-rated for tax and still lose the RNRB.
• Liabilities such as mortgages and funeral costs do reduce the figure. Lifetime gifts made in the seven years before death are not included in the £2m test, even though they are taxed separately.

Worked example: taper in action

Ranjit dies with a net estate of £2,300,000, including a home worth £600,000 left to his daughter. He is a widower but his late wife's allowances were all used on her death.

1. Excess over the threshold: £2,300,000 − £2,000,000 = £300,000
2. RNRB reduction: £300,000 ÷ 2 = £150,000
3. RNRB available: £175,000 − £150,000 = £25,000
4. Total allowances: £325,000 + £25,000 = £350,000
5. Taxable: £2,300,000 − £350,000 = £1,950,000, taxed at 40% = £780,000

Because the taper works on the whole estate rather than the house, gifts made more than seven years before death, or a charitable legacy, can bring an estate back under £2m and restore the full allowance. That arithmetic is worth running properly — our inheritance tax calculator shows the effect of moving the estate value across the threshold.

One change on the horizon pushes more estates into taper territory: unused pension funds are due to be brought into the inheritance tax estate from 6 April 2027, which will increase the net estate figure used for the £2m test.

Downsizing: keeping the allowance after you sell

The obvious flaw in an allowance tied to a house is that people sell houses. The downsizing addition fixes that. If you sold, gave away or downsized a qualifying home on or after 8 July 2015, you can claim back the RNRB you would otherwise have lost, provided assets of at least equivalent value pass to direct descendants.

The mechanics work in percentages of the maximum RNRB at the date of disposal (£175,000 for disposals from 2020/21 onwards, less in earlier years). In outline:

1. Work out the RNRB the former home would have used, capped at the maximum available when it was sold.
2. Work out the RNRB the estate can use on any home still owned at death.
3. The shortfall is the downsizing addition — capped at the value of other assets actually passing to direct descendants.

Worked example: downsizing

Margaret sold a house worth £350,000 in 2023 and bought a flat for £150,000. She dies in 2026/27 leaving the flat and £300,000 of savings to her son.

• The old house exceeded the £175,000 maximum, so it would have used the full RNRB.
• The flat is worth £150,000, so only £150,000 of RNRB can be used against it.
• Shortfall: £175,000 − £150,000 = £25,000. Her son inherits £300,000 of other assets, comfortably more than the addition.
• Total RNRB: £150,000 + £25,000 = £175,000, plus the £325,000 nil rate band.

The same principle applies if you sell up entirely and move into rented accommodation or a care home — the addition can be the full £175,000, as long as £175,000 or more of other assets go to direct descendants. It must be claimed; it is never given automatically.

Transferring unused RNRB between spouses and civil partners

Anything left to a spouse or civil partner is exempt from inheritance tax, so on a first death the RNRB usually goes unused. The unused percentage transfers to the survivor's estate, exactly like the main nil rate band.

Three points people get wrong:

• It works even if the first death was before 6 April 2017, when the RNRB did not exist. The first spouse is treated as having had an unused 100% band, so the survivor can claim up to £350,000.
• It is a percentage, not a cash sum. If 40% of the first spouse's RNRB was used, 60% of the maximum at the second death transfers.
• The survivor's estate still has to meet the conditions. A transferred band is useless if the survivor owns no qualifying home and there is no downsizing addition, or if the property goes to someone who is not a direct descendant.

Worked example: the £1 million couple

David died in 2019 leaving everything to his wife Ann. Ann dies in 2026/27 with an estate of £1,200,000, including the family home worth £500,000. Everything passes to their children.

• Nil rate bands: £325,000 + £325,000 transferred = £650,000
• RNRB: £175,000 + £175,000 transferred = £350,000 (the home is worth more than £350,000, so the full amount is usable)
• Total allowances: £1,000,000
• Taxable: £1,200,000 − £1,000,000 = £200,000, taxed at 40% = £80,000

Claiming it, and the traps to watch

The RNRB is claimed by the personal representatives on form IHT435, with the transferred band claimed on IHT436 and the downsizing addition supported by IHT438. The claim normally has to be made within two years of the end of the month of death. HMRC will not apply the allowance for you.

Recurring traps:

• Wills that leave the residue, including the home, to a discretionary trust.
• An estate just over £2 million where nobody checks the taper, or where BPR-relieved business assets are wrongly left out of the £2m test.
• Homes left to a partner the deceased never married — not a direct descendant, and no spouse exemption either.
• A downsizing addition nobody claims because the sale happened years earlier and the executors are unaware of it.
• Assuming the allowance grows. The nil rate band and RNRB are frozen, so more estates drift into charge each year.

You can read HMRC's own guidance at GOV.UK: Inheritance Tax residence nil rate band.

What to do next

Start with the numbers. Add up the estate including the home, any business or agricultural assets at full value, and pension funds if death would fall after the rules change, then check whether you are above or below the £2 million taper threshold. Then check the destination of the home in the will — that single line decides whether £175,000 of allowance survives.

Run the figures through the TaxFly inheritance tax calculator to see the combined effect of the nil rate band, the residence nil rate band and any transferred allowances on the tax your estate would pay. Where an estate is close to £2 million, or a discretionary trust is involved, the wording of the will matters more than the size of the allowance, and that is a conversation for a solicitor or a chartered tax adviser.