Residence Nil Rate Band UK (2026): RNRB Rules, £175,000 Allowance, Downsizing, and Taper

The Residence Nil Rate Band (RNRB) is an additional IHT nil rate band that applies to the family home where it passes to direct descendants on death. It was introduced by the Finance (No. 2) Act 2015 and is now in IHTA 1984 ss.8D–8M: (1) THE ALLOWANCE: £175,000 per person for the tax year 2017–18 onwards (it was phased in — £100k in 2017–18; £125k in 2018–19; £150k in 2019–20; £175k from 2020–21 onwards). It has been frozen at £175,000 and the freeze extends to April 2028 (confirmed by the Autumn Budget 2024); (2) QUALIFYING RESIDENTIAL INTEREST (IHTA 1984 s.8H): the RNRB applies to a 'qualifying residential interest' — a dwelling house that has, at some point, been the deceased's residence. The property must have been the deceased's home at some point — it does not need to be their home at death (e.g. a person who has moved into care but still owns their former home can still qualify). Buy-to-let property that was NEVER the deceased's residence does NOT qualify; (3) INHERITED BY LINEAL DESCENDANTS (IHTA 1984 s.8K): the property must be left to one or more DIRECT DESCENDANTS (also called 'lineal descendants'): (a) Children (including adopted, step, and fostered children); (b) Grandchildren; (c) Great-grandchildren and further generations; (d) Their spouses or civil partners; (e) Their widows, widowers, or surviving civil partners; (4) WHO DOES NOT QUALIFY: (a) Brothers or sisters; (b) Nieces and nephews; (c) Friends; (d) Charities; (e) A discretionary trust (even if only descendants are beneficiaries — see trust interaction below); (5) THE RNRB CANNOT EXCEED THE PROPERTY VALUE: the RNRB is capped at the lower of the RNRB allowance (£175,000) and the net value of the qualifying residential interest. If the house is worth £120,000, the RNRB is £120,000 — not £175,000; (6) CLAIMING THE RNRB: the RNRB is claimed on the IHT400 (Schedule IHT435) or, for smaller estates, on IHT205/IHT217 where the estate qualifies as an excepted estate.

The transferable RNRB is one of the most valuable IHT planning tools for married couples and civil partners: (1) THE TRANSFERABLE RNRB (IHTA 1984 s.8G): where a person dies and the WHOLE or PART of their RNRB is unused, the unused portion transfers to the surviving spouse or civil partner. On the survivor's death, the survivor's estate can claim both their own RNRB AND the transferred RNRB; (2) THE COMBINED £1 MILLION ALLOWANCE FOR COUPLES: NRB: £325,000 (frozen to April 2030); RNRB: £175,000; Transferable NRB from first spouse: £325,000; Transferable RNRB from first spouse: £175,000; TOTAL: £1,000,000. This means a couple can pass £1 million IHT-free where the estate includes at least £350,000 of residential property passing to direct descendants; (3) WHEN THE FIRST SPOUSE'S RNRB WAS NOT USED: the RNRB was not available before 2017–18. If the first spouse died BEFORE 6 April 2017, 100% of the RNRB transfers to the survivor (IHTA 1984 s.8G(4)) — because 0% was used (the RNRB did not exist). The surviving spouse gets their own RNRB + 100% transferable RNRB = £350,000 RNRB; (4) PARTIAL TRANSFER: if the first spouse's estate included a house worth £125,000 that passed to a child, and the RNRB at the time was £175,000, then £125,000 was used and £50,000 (28.57%) was unused. The surviving spouse gets 28.57% of their own £175,000 RNRB transferred = £50,000 extra RNRB; (5) TRANSFER IS AUTOMATIC — BUT MUST BE CLAIMED: the transfer does not happen automatically on first death — the surviving spouse's executors must CLAIM the transferred RNRB on the survivor's IHT400 (Schedule IHT436). Executors who are unaware of this can miss a £175,000 additional band; (6) REMARRIAGE: where a person has been married more than once, they can only transfer RNRB from ONE previous deceased spouse — not from multiple spouses. However, the 100% cap means the most they can claim is 100% transferred RNRB (their own + 100% transfer = 200% = £350,000).

The RNRB tapers away for larger estates — it is not available to very wealthy individuals. Understanding the taper is critical for estate planning with assets over £2 million: (1) THE TAPER RULE (IHTA 1984 s.8D(5)): the RNRB is reduced by £1 for every £2 by which the 'adjusted net estate value' exceeds the taper threshold. The taper threshold is £2,000,000 (unchanged since the RNRB was introduced in 2017); (2) THE ADJUSTED NET ESTATE VALUE: this is the value of the deceased's estate AFTER deducting: (a) Reliefs that reduce asset values (BPR — IHTA 1984 ss.103-114; APR); (b) BEFORE deducting: spouse exemption; charitable exemption; the RNRB itself; the standard NRB. NOTE: the adjusted net estate value does NOT deduct the spouse exemption or the NRB. This means a large estate that is mostly spouse-exempt can still be subject to the taper; (3) PRACTICAL TAPER CALCULATION: RNRB at £175,000; taper starts at £2,000,000; RNRB is fully eliminated when the adjusted net estate = £2,350,000 (£2,000,000 + (£175,000 × 2)). So: estate at exactly £2m: full RNRB of £175,000; estate at £2.1m: RNRB reduced by (£100,000 / 2) = £50,000 reduction → RNRB = £125,000; estate at £2.35m: RNRB = £0; estate above £2.35m: no RNRB available; (4) TAPER AND COUPLES: the taper applies independently to each spouse on their respective deaths. If the second spouse's estate (including transferred assets from first death) is above £2m, the transferable RNRB is also reduced by the taper; (5) PLANNING AROUND THE TAPER: to preserve the RNRB, consider: (a) Gifting assets during lifetime (PET strategy) to reduce the estate below £2m; (b) Life insurance in trust (proceeds outside estate); (c) Pension nominations (pensions outside estate — death benefits); (d) BPR qualifying investments (agricultural shares; AIM shares) — BPR value is excluded from the adjusted net estate calculation, which reduces the taper exposure.

The downsizing addition (IHTA 1984 s.8FA) prevents the loss of the RNRB where a person has downsized, sold their home, or moved into residential care before death: (1) THE PROBLEM WITHOUT DOWNSIZING ADDITION: the RNRB normally requires a qualifying residential interest to pass to direct descendants on death. If a person sold their large house, moved into a smaller property (or rented), and left the cash proceeds — they would lose the RNRB because no qualifying residential property passes on death. This would penalise people for downsizing (often done in old age to fund care); (2) THE DOWNSIZING ADDITION (IHTA 1984 s.8FA): where a person sold or gave away a qualifying residential interest on or after 8 July 2015, they may be entitled to a DOWNSIZING ADDITION on death, equivalent to the LOST RNRB. The addition is available where: (a) The person sold or downsized from a qualifying residential interest (their former home) on or after 8 July 2015; (b) The estate on death includes assets passing to direct descendants (even if those are not the family home — cash; investments; another property); (c) The RNRB that would have been available for the former property is larger than the RNRB available for the current property (if any); (3) HOW THE DOWNSIZING ADDITION IS CALCULATED: (a) Determine what the RNRB would have been on the former property (capped at the RNRB at date of death and the former property's value at the date of disposal); (b) Compare to the RNRB available for the current property (if any); (c) The downsizing addition = the DIFFERENCE; the total RNRB (including downsizing addition) cannot exceed the maximum RNRB (£175,000); (4) THE ASSETS PASSING TO DESCENDANTS: the downsizing addition requires OTHER assets (not the former home) to pass to direct descendants. These assets must be of sufficient value — the downsizing addition cannot exceed the value of non-residential assets passing to descendants; (5) CARE HOME RESIDENTS: if a person moves into a care home and sells their former home, the downsizing addition preserves the RNRB — ensuring their estate can still benefit from the full £175,000 allowance if sufficient assets pass to direct descendants on death.

The RNRB does NOT apply to property held in a DISCRETIONARY TRUST — even if all beneficiaries are direct descendants. This is one of the most important planning points for will drafting: (1) DISCRETIONARY TRUSTS DO NOT QUALIFY: if the family home passes into a DISCRETIONARY TRUST under the will (even a trust for children and grandchildren), the RNRB is LOST. The property has not been 'inherited' by a direct descendant — it has been transferred to trustees; (2) IMMEDIATE POST DEATH INTEREST (IPDI) TRUSTS — RNRB AVAILABLE: an IPDI (IHTA 1984 s.49A) is treated as the life tenant owning the property absolutely. If the life tenant is the surviving spouse, the RNRB is NOT claimed on first death (spouse exemption applies; there is no IHT). The RNRB transfer applies on second death. If the IPDI gives the life interest to the surviving spouse with the remainder passing to children on the life tenant's death — the RNRB is available on the surviving spouse's death (the property passes from the IIP trust to direct descendants); (3) BEREAVED MINOR TRUST / 18-25 TRUST: these do qualify for the RNRB if the property passes to them from the will (children automatically qualify); (4) ABSOLUTE GIFT TO DIRECT DESCENDANTS: the simplest way to preserve the RNRB is to give the family home (or your share of it) directly to children or grandchildren in the will. No trust required; (5) THE 'FLEXIBLE' WILL TRUST PROBLEM: many older wills contain a nil rate band discretionary trust (the 'NRBDT') that was popular before the transferable NRB was introduced in 2007. These trusts direct the NRB amount (currently £325,000) into a discretionary trust for children, with the remainder to the surviving spouse. If the will leaves a share of the family home into the discretionary trust, the RNRB is lost on THAT share. The trust should be reviewed and updated — if the NRB amount from the house passes to children absolutely (not in trust), the RNRB is preserved; (6) PRACTICAL WILL REVIEW: executors of any will containing a discretionary trust should check whether the trust prevents the RNRB claim. In many cases, a deed of variation within 2 years of death can restructure the distribution to preserve the RNRB.