The Residence Nil-Rate Band explained, and why many families miss out

The Residence Nil-Rate Band (RNRB) was introduced in 2017 and can add up to £175,000 to the inheritance tax threshold of a homeowner who leaves their property to direct descendants. For couples, that means a combined additional allowance of up to £350,000. [1]

On paper, a married couple with a family home can pass up to £1 million free of inheritance tax. In practice, many families fail to claim the full RNRB, or lose it entirely, because of conditions that are not widely understood.

How the RNRB works

The RNRB is available where:

• You own a residential property that you have lived in at some point (it does not need to be your current home or your main residence at death)
• The property is left to direct descendants, this means children (including stepchildren, adopted children, and foster children), grandchildren, and their spouses or civil partners
• Your estate does not exceed £2 million (see the taper below)

The current RNRB is £175,000 per person, frozen until April 2030. Like the standard nil-rate band, any unused RNRB transfers to a surviving spouse or civil partner, so a couple can have up to £350,000 of RNRB available on the second death, in addition to £650,000 of nil-rate band. [1]

Who counts as a "direct descendant"?

This is where many wills go wrong. The following do count:

• Children (biological, adopted, step, fostered)
• Grandchildren and great-grandchildren
• Spouses and civil partners of the above

The following do not count:

• Nieces and nephews
• Siblings
• Unmarried partners of your children
• Friends

If your will leaves your property to a sibling, a niece, or any person outside the direct descendant definition, the RNRB is not available, even if the rest of your estate would have qualified.

The £2 million taper trap

The RNRB tapers away for estates above £2 million. For every £2 of estate above £2 million, £1 of RNRB is lost. [2]

Estate value (single)	RNRB available
Up to £2m	£175,000 (full)
£2.175m	£87,500 (half)
£2.35m+	£0 (fully withdrawn)

Estate value (couple)	Combined RNRB available
Up to £2m	£350,000 (full)
£2.35m	£175,000 (half)
£2.7m+	£0 (fully withdrawn)

This creates a significant problem for estates just over £2 million. An estate of £2.1 million loses £50,000 of RNRB, creating an additional IHT bill of £20,000 on assets worth £100,000 above the threshold. Strategic planning to bring the estate below £2 million (through gifting, pension restructuring, or trust use) can recover the full RNRB.

The downsizing addition

If you sold or gave away a home after 8 July 2015 and your estate would otherwise qualify for the RNRB, a downsizing addition may preserve some or all of the RNRB you would have lost. The principle is that moving to a smaller home, or selling a property and moving into care, should not automatically forfeit the relief. [2]

The downsizing addition requires careful calculation at the point of estate administration. Executors should obtain specialist advice where this may apply.

Common planning mistakes

Leaving property to the wrong beneficiary A will that leaves the family home to siblings, a charity (RNRB does not apply to charitable gifts), or a non-qualifying trust will not attract RNRB. Reviewing your will specifically against the RNRB qualifying conditions is an essential planning step.

Discretionary trusts and the RNRB If your property is left into a discretionary trust on death, the RNRB is not available, even if all the potential beneficiaries of the trust are direct descendants. The property must pass to direct descendants directly, or into certain qualifying trusts (immediate post-death interest trusts, bereaved minor trusts, and 18-to-25 trusts may qualify). This is a commonly missed issue in older wills drafted before the RNRB was introduced. [3]

Failing to claim the transferred RNRB on second death The transferred RNRB does not apply automatically. Executors on the second death must make a formal claim to HMRC within two years of the end of the month of the second death.

Frequently asked questions

Can I claim the RNRB if I sell my house and move into a care home? Yes, if the downsizing addition applies. If you sold a qualifying home after 8 July 2015, moved into care, and leave the estate to direct descendants, the downsizing addition may preserve your RNRB. The estate must still meet the other conditions.

What if I rent rather than own property? The RNRB is only available where you own a residential property that you have lived in. Renters are not entitled to the RNRB, though the standard nil-rate band still applies.

Does the RNRB apply to buy-to-let properties? Only if you have lived in the property at some point. A buy-to-let property you have never occupied does not qualify. A former family home that is now let does qualify.

My estate is over £2.35 million. Is there any planning I can do? Yes. Lifetime gifts, pension restructuring (particularly relevant given the April 2027 pension changes), trusts, and business property structures can reduce the chargeable estate below the taper threshold. For estates near the £2 million mark, even modest planning can recover substantial RNRB.

This article provides general information only and does not constitute personal financial or tax advice. Tardi Group recommends professional advice specific to your circumstances.