Definition
The Residence Nil-Rate Band (RNRB) is an additional inheritance tax allowance, currently £175,000, available when you leave your home to your children or grandchildren, potentially increasing tax-free inheritance to £500,000.
This allowance sits on top of the standard nil-rate band and could save your family up to £70,000 in inheritance tax. For married couples who combine their allowances, the total tax-free threshold can reach £1 million.
What Does Residence Nil-Rate Band Mean?
Under the Inheritance Tax Act 1984 (sections 8D-8M), the RNRB provides an additional £175,000 tax-free allowance when qualifying residential property passes to direct descendants on death. Introduced in April 2017 and frozen at £175,000 until 2030, this allowance works alongside the standard £325,000 nil-rate band, creating a combined tax-free threshold of £500,000 for individuals. The Finance Act 2016 added downsizing provisions to protect people who sold or reduced their property value after 8 July 2015.
To qualify for RNRB, you must leave your home—or a share of it—to direct descendants. This includes children, grandchildren, step-children, adopted children, and foster children, but crucially not nieces, nephews, siblings, or other relatives. The property must have been used as your residence at some point, though you don't need a minimum ownership period. Sarah leaves her £400,000 home to her two daughters. Her estate claims the full £175,000 RNRB, meaning £500,000 of her estate (£325,000 standard nil-rate band plus £175,000 RNRB) passes tax-free, with inheritance tax only applying to amounts above this threshold.
Downsizing protection ensures you don't lose RNRB if you sell your family home or move to a less valuable property. Emma sold her £500,000 family home in 2020 and moved to a £250,000 flat, gifting £200,000 to her son. When she dies in 2025 leaving the flat to her son, her estate can still claim the full RNRB because she downsized after 8 July 2015 and left equivalent value to direct descendants. This protection particularly helps people who move into care homes or downsize in retirement.
The main limitation is the £2 million taper threshold. If your estate exceeds £2 million, the RNRB reduces by £1 for every £2 over this threshold. David dies in 2025 with a £2.2 million estate including an £800,000 home left to his daughter. His estate exceeds the threshold by £200,000, reducing his RNRB by £100,000 (£200,000 ÷ 2). He receives £75,000 RNRB instead of the full £175,000, losing a potential £40,000 tax saving. Estates worth £2.35 million or more receive no RNRB at all, assuming the full £175,000 would otherwise apply.
Common Questions
"Can I claim the residence nil-rate band if I leave my home to my niece?" No, the RNRB only applies when you leave your home to direct descendants—children, grandchildren, step-children, adopted children, or foster children. Nieces, nephews, siblings, and other relatives don't qualify as direct descendants, so leaving your home to them won't allow your estate to claim this additional allowance.
"What happens to the residence nil-rate band if my estate is worth more than £2 million?" The RNRB is reduced by £1 for every £2 your estate exceeds £2 million. For example, if your estate is worth £2.1 million, your RNRB reduces from £175,000 to £125,000. Estates worth £2.35 million or more lose the RNRB entirely, assuming the full £175,000 would otherwise be available.
"Can I still get the residence nil-rate band if I sell my home and move into rented accommodation?" Yes, thanks to downsizing provisions introduced in 2016. If you sold your home or moved to a less valuable property after 8 July 2015, you can still claim all or part of the RNRB, provided you leave assets of equivalent value to your direct descendants. This protects people who downsize in later life or move into care homes.
Common Misconceptions
Myth: The residence nil-rate band is automatic—I don't need to include my home in my will
Reality: While the RNRB is automatically available if conditions are met, you must actually leave your home or a share of it to your direct descendants in your will for it to apply. If you die intestate or leave your home to someone else, your estate won't qualify for the RNRB even if you have children. The term "automatic" means the relief applies without filing special forms, not that will planning is unnecessary.
Myth: If my children inherit my home, they can't sell it or they'll lose the tax benefit
Reality: Once your children inherit your home, there are no restrictions on what they do with it. They can sell it immediately, rent it out, or live in it—the estate still receives the RNRB tax benefit. The restriction is on who inherits, not what they do afterward. People often confuse RNRB with other reliefs that have clawback rules if assets are sold quickly.
Related Terms
Understanding Residence Nil-Rate Band connects to these related concepts:
- Nil-Rate Band: The RNRB is an additional allowance that sits on top of the standard £325,000 nil-rate band, working together to determine your total tax-free amount.
- Inheritance Tax: RNRB is a threshold relief that reduces the amount of inheritance tax payable on an estate, particularly benefiting families with property wealth.
- Direct Descendants: This defines who must inherit the property for RNRB to apply—children, grandchildren, step-children, adopted children, and foster children only.
- Transferable Nil-Rate Band: Just like the standard nil-rate band, any unused RNRB can transfer from a deceased spouse or civil partner to the survivor, potentially doubling the allowance to £350,000.
- Downsizing Relief: This protective provision preserves all or part of the RNRB when someone has downsized or sold their property after 8 July 2015, provided equivalent value passes to direct descendants.
Related Articles
- Inheritance Tax Planning Strategies: Discover how RNRB works alongside other reliefs and exemptions to reduce inheritance tax liability on property-rich estates.
- Leaving Your Home to Your Children: Learn how to maximize RNRB when passing property to the next generation, including ownership structures and tax-efficient strategies.
- Estate Planning for Homeowners: Essential reading if your home represents your main asset, with practical steps to ensure you qualify for the full £175,000 RNRB.
- Mid-Life Financial Planning Guide: Understand how decisions about downsizing, remortgaging, or gifting property in your 40s-60s can affect RNRB eligibility when you retire.
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Legal Disclaimer: This glossary entry provides general information about the Residence Nil-Rate Band and does not constitute legal or tax advice. RNRB rules are complex and interact with other aspects of inheritance tax planning. For advice specific to your situation, particularly if your estate is close to the £2 million taper threshold or involves trusts, consult a qualified solicitor or tax adviser.