RNRB Downsizing Addition UK (2026): Claiming the Residence Nil-Rate Band After Selling Your Home

The residence nil-rate band (RNRB) was introduced by Finance Act 2017 as an additional nil-rate band available where a qualifying residence passes to direct descendants. Its maximum is £175,000 per person (2026). Without the downsizing addition, a critical unfairness existed: (1) THE PROBLEM WITHOUT s.8FA: the basic RNRB only applies where the deceased owns a qualifying residential interest at death AND it is closely inherited by a direct descendant. A person who SELLS their home — to fund care home fees, to move abroad, to downsize to a smaller property, or simply to free up capital — and has no qualifying property at death would receive ZERO RNRB. Yet a person who dies still owning their home and leaves it to a child receives the full £175,000 RNRB. This created an IHT penalty for people who made the financially sensible decision to downsize or sell; (2) THE STATUTORY FIX — IHTA 1984 s.8FA (DOWNSIZING ADDITION): Finance Act 2017 inserted s.8FA to provide a 'downsizing addition' to the RNRB where: (a) the deceased owned a qualifying residential interest at any time on or after 8 July 2015 (the date of the 2015 summer Budget announcement); AND (b) they disposed of it (by sale, gift, or otherwise) on or after 8 July 2015; AND (c) the value of the qualifying residential interest held at death (if any) is less than the RNRB otherwise available; AND (d) there is no qualifying residential interest at death at all, OR a smaller one; AND (e) the estate still passes the 'closely inherited' test — a direct descendant must inherit assets of at least the downsizing addition amount; (3) EFFECT: the downsizing addition fills the gap between what RNRB is available on the current (smaller or absent) property and the full RNRB available to the estate. The maximum total RNRB (including downsizing addition) remains £175,000 per person.

The downsizing addition calculation has several steps — it is designed to give the deceased the RNRB they would have had if they still owned the original (higher-value) property: (1) STEP 1 — WHAT IS THE RNRB AVAILABLE TO THE ESTATE? As of 2026, the maximum RNRB is £175,000 (or up to £350,000 with transferable RNRB from a predeceased spouse). Taper: the RNRB is tapered by £1 for every £2 that the estate's net value exceeds £2 million — so an estate worth £2.35 million receives zero RNRB; (2) STEP 2 — WHAT RNRB IS USED BY THE CURRENT QUALIFYING RESIDENTIAL INTEREST? If the deceased owned a property worth £100,000 at death that passes to a direct descendant, that uses £100,000 of RNRB (or the current property's value, whichever is lower); (3) STEP 3 — CALCULATE THE DOWNSIZING ADDITION: Downsizing addition = RNRB available (£175,000) MINUS any RNRB used by current property. If no property at death: downsizing addition = full £175,000 (subject to the 'closely inherited' test below); (4) STEP 4 — THE 'CLOSELY INHERITED' LIMIT: the downsizing addition cannot exceed the value of other estate assets closely inherited by direct descendants (other than the qualifying property). If the downsizing addition would be £175,000 but only £100,000 of non-property assets passes to direct descendants, the downsizing addition is capped at £100,000; (5) WORKED EXAMPLE — NO PROPERTY AT DEATH: Mrs Smith sold her £600,000 family home in 2022 and moved into a care home (paying fees from the sale proceeds). She dies in 2026 with an estate of £500,000 (the remaining sale proceeds and savings). Her will leaves everything to her two sons (direct descendants). Downsizing addition = £175,000. RNRB used = £0 (no property). Closely inherited amount = £500,000 (more than £175,000). Downsizing addition = £175,000. IHT saving = £175,000 × 40% = £70,000; (6) WORKED EXAMPLE — SMALLER PROPERTY AT DEATH: Mr Jones sold his £800,000 home and moved into a £200,000 flat. Both pass to his daughter. RNRB on flat = £175,000 (limited to property value, which is £200,000 > £175,000). Downsizing addition = £0 (RNRB already maximised). No downsizing addition needed; (7) WORKED EXAMPLE — TAPER: if Mrs Smith's estate were £2.3 million, the £300,000 excess above £2m would taper the RNRB by £150,000. RNRB available = £25,000. Downsizing addition = £25,000 only.

The disposal of a qualifying residential interest triggers the downsizing addition entitlement — but the rules on what counts as a qualifying interest and a qualifying disposal are detailed: (1) WHAT IS A 'QUALIFYING RESIDENTIAL INTEREST' (IHTA s.8H): the deceased must have owned an interest in a residential property that they occupied as their home at some point. This includes: (a) freehold or leasehold interest in a house, flat, or other dwelling; (b) even a small share (e.g. 50% under a joint tenancy or tenancy in common) qualifies; (c) a life interest under a trust of a qualifying property may qualify (under s.8J for interest in possession trusts); (2) WHAT COUNTS AS A 'DISPOSAL' (IHTA s.8FA(3)): (a) an OUTRIGHT SALE of the property — the most common scenario (downsizing to a smaller home; selling to fund care); (b) a GIFT of the property — including gifts with reservation (but if given away and still used, IHT complexities arise); (c) a TRANSFER into trust — the deceased moves their home into a trust. Note: if the property is in a discretionary trust, the RNRB is NOT available for trust property (trust beneficiary ≠ direct descendant); (d) MOVING OUT permanently (without selling) — if the deceased owned a property but permanently vacated it (moved to a care home but did not sell the property), the property may still be in the estate and the RNRB applies on the property directly (not via downsizing addition); (3) THE 8 JULY 2015 CONDITION: the disposal must have occurred on or after 8 July 2015. Property sold before that date does not qualify for the downsizing addition — regardless of what the current estate contains; (4) 'PROCEEDS STILL IN THE ESTATE' CONDITION: the legislation does not require the literal proceeds of the sale to be traceable. It requires that the estate closely inherits assets of at least the downsizing addition amount — in value, not necessarily cash. If the deceased spent the sale proceeds on healthcare but still has savings, investments, or other assets of equivalent value passing to descendants, the condition is met.

The transferable RNRB (TRNRB) can be combined with the downsizing addition — doubling the potential benefit for a surviving spouse's estate: (1) THE TRNRB RULE (IHTA s.8G): where a spouse or civil partner died without using their full RNRB — because they did not own a qualifying residential interest or left it all to their spouse (spouse exemption) — the unused RNRB is transferable to the surviving spouse's estate. A 100% transfer of £175,000 doubles the RNRB available to the survivor to £350,000; (2) FIRST DEATH — SOLD PROPERTY, NO RNRB USED: if the first spouse sold their home (for care funding, downsizing, etc.) and left everything to the surviving spouse via the spouse exemption: (a) the first spouse had no qualifying residential interest — RNRB = £0; (b) no TRNRB is generated on the first death (RNRB not used because there was no qualifying interest); (c) HOWEVER, if the first spouse could have used a downsizing addition (they previously owned a home, disposed of it after 8 July 2015, and the estate would have closely inherited), HMRC allows the unused downsizing addition to be transferred as unused RNRB via TRNRB; (3) HOW TO CLAIM: (a) on the surviving spouse's death, the executor claims TRNRB on form IHT436; (b) for the downsizing addition on the surviving spouse's estate: IHT435; (c) evidence of the first spouse's qualifying disposal (e.g. property sale completion statement) should be retained; (4) WORKED EXAMPLE — BOTH SPOUSES SOLD: Mr and Mrs Brown both sold their home in 2022 and moved into a retirement community. Mr Brown dies first, leaving everything to Mrs Brown. Mrs Brown dies in 2026 with £900,000 estate (savings and investments) — no property — passing to their children. Mrs Brown's RNRB: downsizing addition = £175,000 (her own). Mr Brown's unused RNRB: TRNRB transfer = £175,000 (his unused downsizing addition). Total RNRB available = £350,000. NRB: £325,000 (own) + TNRB £325,000 = £650,000. Total threshold = £1,000,000. IHT on £900,000 estate = £0; (5) TAPERING FOR HIGH-VALUE ESTATES: both the RNRB and TRNRB are tapered at £1 per £2 above £2m. For estates over £2.35m, the combined RNRB/TRNRB is zero regardless of downsizing.

The downsizing addition must be actively claimed — it is not automatically given — and requires specific evidence on the IHT return: (1) FORMS REQUIRED: (a) IHT400 (required where IHT is payable or a full account is needed); (b) SCHEDULE IHT435 ('Residence nil-rate band') — must be completed to claim either the RNRB on a current property OR the downsizing addition; (c) SCHEDULE IHT436 ('Transferable residence nil-rate band') — must be completed to claim TRNRB from a predeceased spouse or civil partner; (2) KEY INFORMATION NEEDED FOR IHT435 — DOWNSIZING CLAIM: (a) the address and description of the former qualifying residential interest (the sold or disposed-of property); (b) the date of disposal; (c) the value of the former property at the date of disposal; (d) details of assets in the current estate that are closely inherited by direct descendants (the assets substituted for the former property); (3) EVIDENCE TO RETAIN: (a) the completion statement from the property sale (showing the sale date and net proceeds); (b) the deceased's title documents (showing ownership and date of purchase/disposal); (c) evidence of occupation as a home (council tax bills, electoral roll, utility bills) — particularly important if the property's period of occupation is questioned; (d) evidence that the current estate assets pass to direct descendants; (4) DEADLINES: the RNRB (including downsizing addition) claim must be made within 2 years of the end of the month of death. After this deadline, HMRC may refuse the claim. Executors should not delay the IHT400; (5) HMRC HMCTS DIGITAL ESTATES SERVICE: HMRC is progressively moving to digital IHT reporting. Where the estate qualifies as an excepted estate, the downsizing claim still requires a full IHT400 if the downsizing addition takes the estate below the taxable threshold — check the current HMRC guidance at gov.uk/inheritance-tax; (6) PRACTICAL PLANNING: where a property is being sold (e.g. to fund care), the testator or their family should: (a) note the disposal date (must be on or after 8 July 2015); (b) keep the completion statement permanently; (c) ensure the will directs estate assets to direct descendants; (d) inform the executor where to find the records.