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Inheritance Tax Downsizing Allowance UK: Protecting the RNRB When You Move to a Smaller Home

Updated 31 May 2026 · 8 min read · Inheritance Tax & Estate Planning

The residence nil-rate band (RNRB) gives up to £175,000 of IHT relief on a home left to direct descendants. But what if you’ve downsized, moved to residential care, or sold your home before death? The downsizing allowance (IHTA 1984 s.8FA) ensures you don’t lose the relief just because your property is worth less at death than when you first qualified.

The RNRB Recap

The residence nil-rate band (RNRB) was introduced in 2017 and allows an additional nil-rate band of up to £175,000 (2026/27) to be set against a qualifying residential interest — a home the deceased owned and lived in — that passes to a direct descendant (child, grandchild, stepchild, adopted child, or foster child). The RNRB is on top of the standard nil-rate band of £325,000, giving a combined £500,000 per person, or up to £1 million for a married couple using the transferable RNRB (TRNRB).

The problem: if the deceased had sold or downsized their home before death, the residential interest in the estate at death might be worth less than £175,000 — or nothing. Without the downsizing allowance, the unused RNRB would simply be lost.

When the Downsizing Allowance Applies

The downsizing addition under IHTA 1984 s.8FA applies where:

  1. The deceased owned a qualifying residential interest at some point on or after 8 July 2015.
  2. At death, the qualifying residential interest in the estate is worth less than the maximum available RNRB — because the property was sold, given away, or the deceased moved to a less valuable home.
  3. Assets at least equal in value to the ‘lost’ RNRB are closely inherited — i.e., they pass to a direct descendant or a trust for a direct descendant.

If all three conditions are met, the downsizing addition tops up the RNRB by treating the ‘lost’ residential relief as still available — but applies it against other closely inherited assets (savings, shares, investments) rather than against the property.

Typical Scenarios Where the Allowance Is Claimed

Moving to Residential Care

A person sells their home to fund care home fees. At death, they own no residential property — only savings and investments. Without the downsizing addition, the RNRB is entirely wasted (no qualifying residential interest to set it against). With the downsizing addition, the deceased’s RNRB is applied against the savings and investments that pass to their children — saving up to £70,000 in IHT (£175,000 × 40%).

Downsizing After Children Leave

A person sells a £600,000 family home and moves to a £250,000 flat after retirement. The RNRB at death can only be applied against the £250,000 flat — with some RNRB going unused if the flat is worth less than the maximum RNRB. The downsizing addition compensates for the gap between the RNRB and the value of the current property, applying any excess against other closely inherited assets.

Gifting the Family Home

A parent gifts their home to their children and moves out completely (no reservation of benefit). The home is no longer in the estate. The downsizing addition applies — provided assets of equivalent value pass to descendants — compensating for the loss of the RNRB that would have been available if the home had been retained.

The Calculation: Form IHT435

HMRC requires the downsizing addition claim to be made on form IHT435, attached to the IHT400 estate return. The calculation involves:

  1. Establish the default allowance — the RNRB that would have been available at the time of the disposal of the former property.
  2. Establish the residential enhancement — the RNRB actually available at death (limited by the qualifying residential interest at death).
  3. The downsizing addition = default allowance − residential enhancement, capped at the maximum available RNRB.
  4. Multiply by the closely inherited fraction — the proportion of the estate that passes to direct descendants.

The result is the additional nil-rate band available against other closely inherited assets. The total RNRB (including downsizing addition) cannot exceed the maximum RNRB for the year (currently £175,000 per person).

Interaction With the Transferred RNRB

A surviving spouse can inherit any unused RNRB from the first spouse’s estate — including any unused downsizing addition. This can give the survivor up to £350,000 in combined RNRB (two full RNRB) against their estate, potentially increasing to account for downsizing additions on either death. Executors of the survivor’s estate must claim the TRNRB using form IHT436 and any downsizing addition using form IHT435.

FAQs

What is the IHT downsizing allowance?

The IHT downsizing allowance (formally called the 'downsizing addition') is an additional IHT relief introduced by the Finance (No.2) Act 2015 and inserted into IHTA 1984 as s.8FA. It ensures that a person does not lose their entitlement to the residence nil-rate band (RNRB) simply because they sold or moved out of their home before death — for example, by moving to a smaller property, going into residential care, or converting equity through a financial arrangement. Without the downsizing allowance, a person who had sold their large family home before death and was left with only a smaller property (or no property at all) at death could lose some or all of their RNRB — because the RNRB can only be applied against a qualifying residential interest that is included in the estate and closely inherited. The downsizing allowance tops up the RNRB to reflect what would have been available if the person had retained the former property.

When does the downsizing allowance apply?

The downsizing allowance applies where: (1) The deceased had a qualifying residential interest (a home they owned and lived in) at some point on or after 8 July 2015. (2) At the date of death, the residential interest in the estate is less valuable than the maximum RNRB (£175,000 for 2026/27, or £350,000 for a surviving spouse claiming both) — either because the person sold or gave away their home, downsized to a cheaper property, or had no residential property at all. (3) Assets at least equal in value to the lost RNRB are 'closely inherited' — i.e., they pass to a lineal descendant (direct descendant, including a stepchild, adopted child, or foster child) or to a trust for the benefit of a direct descendant. The downsizing allowance effectively treats the 'lost' RNRB as still available, but channels it against the other closely inherited assets rather than against the property itself. It prevents tax planning disadvantage for people who move to residential care or downsize to release equity.

How is the downsizing addition calculated?

The downsizing addition calculation under IHTA 1984 s.8FA is: Step 1 — Calculate the 'default allowance' at the date of disposal of the former property (or the date the deceased downsized): the RNRB that would have been available on that date, adjusted for the value of the property at that date. Step 2 — Calculate the residential enhancement at the date of death: the RNRB actually available against the estate (limited by the qualifying residential interest at death). Step 3 — The downsizing addition = default allowance minus residential enhancement, capped so the total does not exceed the maximum RNRB. Step 4 — Multiply by the fraction of the estate that is closely inherited. The addition is then available to set against the value of closely inherited non-property assets (shares, savings, etc.) in the same way the RNRB is set against the residential property. HMRC provides a worksheet (IHT435) to calculate the downsizing addition, and the claim must be made on the IHT400 return.

Does the downsizing allowance apply if the home was given away?

Yes — the downsizing allowance also applies where the person gave away their home rather than selling it. However, the interaction with the gift with reservation of benefit (GROB) rules must be considered: (1) If the home was given away with no reservation of benefit (the donor genuinely moved out and ceased to use it), the home no longer forms part of the estate for IHT purposes — the RNRB cannot be applied against it, but the downsizing addition compensates. (2) If the home was given away but the donor continued to live there, the GROB rules bring the property back into the donor's estate — the RNRB can then be applied against the property as normal (no downsizing addition needed, because the property is still in the estate). (3) If the home was given away and the donor moved into residential care, the GROB rules do not apply (there is no reservation) — the property is outside the estate, and the downsizing addition can preserve the RNRB. The interaction between the GROB rules, the RNRB, and the downsizing addition is complex and frequently misunderstood — HMRC guidance (IHTM46000 onwards) provides detailed worked examples.

Can the downsizing allowance be transferred to a surviving spouse?

Yes — the transferred residence nil-rate band (TRNRB) mechanism allows the unused RNRB from a first death to be transferred to the surviving spouse's estate on their death. The downsizing addition interacts with the TRNRB: if the first spouse had a downsizing addition available but did not use it (because their estate was below the IHT threshold), the unused RNRB percentage — including any downsizing element — can be transferred to the survivor. On the survivor's death, their estate can then claim the combined RNRB (their own RNRB + transferred RNRB + any downsizing addition on either death). The maximum benefit for a married couple is therefore £350,000 in RNRB (2 × £175,000 for 2026/27), potentially increased by downsizing additions on either or both deaths — subject to the taper threshold of £2 million. Executors of the survivor's estate must claim the TRNRB and any downsizing additions on the IHT400, attaching form IHT436 for the transferred RNRB and IHT435 for the downsizing addition.

What assets can the downsizing addition be set against?

The downsizing addition can only be set against the value of 'closely inherited' assets — assets that pass to a direct descendant (child, grandchild, stepchild, adopted child, foster child) or to a trust for the benefit of a direct descendant. It cannot be used to reduce IHT on assets left to non-descendants (such as siblings, nephews, or friends), charities, or estates that pass entirely to a surviving spouse (who qualifies for the spouse exemption anyway). The downsizing addition is applied after the RNRB has been set against any qualifying residential interest in the estate. Any remaining addition is then applied against non-property closely inherited assets in the estate — shares, savings, investments, non-qualifying property. The total RNRB plus downsizing addition cannot exceed the maximum available RNRB for the tax year. Executors must ensure the estate is structured so that closely inherited assets are identified clearly and their value is allocated in the IHT return to maximise the benefit of the downsizing addition.

Protect Your RNRB Entitlement in Your Will

To claim the RNRB and the downsizing addition, your will must leave qualifying assets to direct descendants. WillSafe’s DIY will kit for England and Wales helps you put a legally valid will in place — ensuring your estate can claim the full RNRB relief available.

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