HM Insights

How can you make use of the new Residence Nil Rate Band?

For deaths occurring on or after 6 April 2017, a new Residence Nil Rate Band (RNRB) allowance for Inheritance Tax has become available in addition to the existing nil rate band of £325,000 per person.

The RNRB allows individuals to leave a house to direct descendants with some or possibly all of the property value being free of inheritance tax (IHT). The RNRB, once it has been fully introduced, could result in a £140,000 IHT saving.

Residence Nil Rate Band Inheritance Tax Allowance

The Basic Rules

An estate will be entitled to the RNRB in full where:

  1. The individual dies on or after 6 April 2017;
  2. The individual owns a home, or a share of one, so that it's included in their estate at death;
  3. The individual's direct descendants (i.e. children/grandchildren) or certain others inherit the home, or a share of it;
  4. The value of the estate isn't more than £2 million.

An estate will also be entitled to the RNRB at the value of their most expensive property post 7 July 2015, even if the individual subsequently downsized to a less valuable home or they sold their home after 7 July 2015.

How is the RNRB to be phased in?

The RNRB will be phased in over a period of four years. For deaths in the following tax years the exemption level will be the following sums per person:

  • 2017-2018 - £100,000
  • 2018-2019 - £125,000
  • 2019-2020 - £150,000
  • 2020-2021 - £175,000

For later years, the maximum RNRB will increase in line with inflation (based on the Consumer Prices Index).

Does the RNRB apply to me?

For the allowance to apply, you need to own a "qualifying residential interest" which needs to be "closely inherited".

A "qualifying residential interest" is an interest in a dwelling house that was the deceased person's residence at some point during their ownership. The property does not need to be the deceased's residence at the time of death. It only needs to have been the deceased's residence at some point.

To be "closely inherited" the qualifying residential interest should pass to a direct descendant, e.g. children, grandchildren, step-children. Beneficiaries can also include the widow, widower or surviving civil partner of a direct descendant provided they have not remarried.

If your estate comprises more than one residence, only one residence will qualify and it will be up to your Executors to make a nomination.

Where the value of the qualifying residence is less than the available relief, the amount of RNRB is limited to the value of that residence. Any unused excess is available for transfer to a spouse or civil partner.

Gifts which you continue to benefit from

If the property is treated as forming part of the deceased person's estate because it is a gift which they can continue to benefit from ("gift with reservation of benefit"), it is regarded as inherited by the original donee. If the donee is a direct descendant, then the property can still benefit from the RNRB.

What happens where the residence forms part of the residue of the estate?

Where the qualifying residence forms part of the residue of the estate, and only part of the residue is closely inherited, the question arises as to whether the residence can be allocated primarily to the qualifying beneficiaries or whether the relief should be applied proportionately. If you are considering leaving the residue of your estate to beneficiaries other than direct descendants you might want to consider leaving a legacy of a property to a direct descendant in order to benefit from the full relief.


If you have a large estate you may not see any benefit from this allowance. The RNRB will be reduced by £1 for every £2 where the deceased's net estate exceeds £2 million.

This means that this tax year (2017/2018), there will be no RNRB available if the deceased holds assets of more than £2.2 million. By 2021/22 when the full allowance is introduced, this will rise to £2.35 million (or £2.7 million for a couple).

Business Property Relief and Agricultural Property Relief will be ignored when calculating the value of the estate.


The property can be held in certain trusts for direct descendants; however it will not qualify for relief if it passes into a discretionary trust.


The property does not need to be owned on the date of death. If the deceased person downsized or sold the property (i.e. to move into a care home) the RNRB will still be available provided:

  1. The property disposed of was owned by the individual and it would have qualified for the RNRB had the individual retained it; and
  2. The replacement property and/or assets form part of the estate and pass to the direct descendants.
  3. The downsizing or disposal of the property took place after 7 July 2015. There is no time limit on the period between the disposal and when death occurs.

Do I need to change my Will to make use of the allowance?

It is sensible to review your Will regularly anyway, but it is also important that you do not miss out on the new allowance due to the current drafting of your Will. If you have any questions about whether or not you will qualify for the allowance please get in touch.

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