What are the rules for the Residence Nil-Rate Band (RNRB) for inheritance tax?

Full answer

The Residence Nil-Rate Band (RNRB) was introduced in April 2017 to help families pass the family home to children and grandchildren free of IHT. Combined with the standard Nil-Rate Band (NRB), it can significantly increase the tax-free threshold for qualifying estates. The RNRB allowance The RNRB is GBP 175,000 per individual in 2026/27. Combined with the NRB of GBP 325,000, a single person can potentially pass GBP 500,000 tax-free. For married couples and civil partners who transfer unused allowances, the total is GBP 1,000,000 (GBP 650,000 NRB + GBP 350,000 RNRB). Qualifying conditions To claim the RNRB: 1. The deceased must have owned a qualifying residential property (which was their home at some point -- not just an investment property they never lived in) 2. The property (or an equivalent interest -- see downsizing below) must be left to direct descendants: children, grandchildren, step-children, adopted children, or their spouses/civil partners 3. Trusts generally do not qualify for the RNRB (the property must pass directly to a lineal descendant or into a bereaved minor's trust) Taper for larger estates The RNRB tapers away for estates with a net value above GBP 2,000,000. For every GBP 2 of estate above GBP 2,000,000, GBP 1 of RNRB is lost. The RNRB disappears entirely at: -- GBP 2,350,000 for an individual (GBP 175,000 / 0.5 = GBP 350,000 above GBP 2m) -- GBP 2,700,000 for a couple with both RNRBs transferred (GBP 350,000 / 0.5 = GBP 700,000 above GBP 2m) Transferable RNRB Unused RNRB from a deceased spouse or civil partner can be transferred to the surviving spouse's estate, just as the NRB can be transferred. If the first spouse died before April 2017 (when the RNRB was introduced) the full GBP 175,000 RNRB can still be transferred -- effectively doubling the allowance. Downsizing provisions If you sold or downsized your home after 8 July 2015 and the new home has a lower value (or you have no home at death), you may still claim a downsizing RNRB against other assets left to direct descendants. The downsizing addition equals the RNRB that would have been available on the former property. IHT planning For estates above GBP 2m the taper significantly reduces the benefit of the RNRB. Strategies such as making gifts during lifetime (using the annual exemption of GBP 3,000 plus one prior year unused), setting up a deed of variation after death, or utilising Business Property Relief on qualifying business assets can help maximise the benefit of the RNRB and NRB together.

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