The New IHT Residential Nil Rate Band (RNRB)


The New IHT Residential Nil Rate Band (RNRB)

The new IHT Residence Nil Rate Band (RNRB) was introduced in April 2017. It is in addition to an individual’s normal inheritance tax nil rate band of £325,000.

An estate will be entitled to the RNRB if the:

  • individual dies on or after 6 April 2017
  • individual owns a home, or a share of one, so that it’s included in their estate
  • individual’s direct descendants such as children or grandchildren inherit the home, or a share of it
  • value of the individuals estate isn’t more than £2 million

An estate will also be entitled to the RNRB when an individual has downsized to a less valuable home or sold or given away their home after 7 July 2015.

1. How much will it be?

The RNRB was introduced in April 2017. It started at £100,000 and will increase by £25,000 each tax year until the full allowance of £175,000 is reached in 2020.

Current Nil Rate BandMaximum Residential Nil Rate BandTotal Nil Rate Band
2017 to 2018£325,000£100,000£425,000
2018 to 2019£325,000£125,000£450,000
2019 to 2020£325,000£150,000£475,000
2020 to 2021£325,000£175,000£500,000

For later years, the maximum RNRB will increase in line with inflation (based on the Consumer Prices Index).By 2020/21 families could escape IHT on up to £1M of their wealth. Each parent will have a nil-rate band of £325,000 plus a RNRB of up to £175,000 giving a total of £500,000 each.

Of course these are the maximum amounts. The available allowance will be reduced if the value of the property is less than this.

For example, a father dies in 2020/21 and his will gifts his 50% share in the family home to his children. If this share is valued at £140,000, the extra £35,000 of nil rate band will go unused (but may be transferred to his widow).

2. When the RNRB can be transferred?

Any unused RNRB when someone dies can be transferred to the deceased’s spouse or civil partner’s estate, much like the standard nil rate band. This is irrespective of when the first death occurred or whether they owned residential property at their death. This means the RNRB can be transferred even if the first of the couple died before 6 April 2017, even though the RNRB wasn’t available at that time. It is the unused percentage of the RNRB from the estate of the first to die which can be claimed on the second death.

3. Larger estates – Tapering the residence nil rate band

Clients with large estates may not see any benefit from the extra nil rate band. For estates valued at more than £2 million, the RNRB (and any transferred RNRB) will be gradually withdrawn or tapered away. The residence nil rate band will be reduced by £1 for every £2 that the deceased’s net estate exceeds £2M.

This will mean that in the tax year 2017/2018,  there will be no RNRB available if the deceased holds assets of more than £2.2M. This will rise to assets of £2.35M in 2021/22 when the full £175K allowance kicks in.

Reliefs such as Business Property Relief and Agricultural Property Relief are ignored when calculating the value of the estate.

People with larger estates may still be able to benefit from RNRB by taking various actions prior to death. This is dealt with later in this report.

4. Who can benefit?

The RNRB is only available where the main residence passes to children (including adopted, foster or step children) or linear descendants on death.

However, the rules have been extended to accommodate situations where the family home passes into the joint names of the deceased’s child and their spouse.

5. What if the family home passes into trust?

The residence nil rate band may be lost where, for example, the property is placed into a Discretionary Will Trust for the benefit of the children or grandchildren.

However, some trusts for the benefit for children and grandchildren will not result in a loss of the allowance. If the trust gives a child or grandchild an absolute interest or interest in possession in the home, the RNRB can still be claimed. Other trusts such as Bereaved Minor Trusts, 18 – 25 Trusts and Disabled Persons’ Trusts will also retain the additional nil rate band.

6. What about downsizing?

The family home doesn’t need to be owned at death to qualify. This is of help to those who may have downsized or sold their property to move into residential care or a relative’s home.

The RNRB will still be available provided that:

  • The property disposed of was owned by the individual and it would have qualified for the RNRB had the individual retained it;
  • The replacement property and/or assets form part of the estate and pass to descendants.
  • Downsizing or the disposal of the property has to take place after 8 July 2015. But there is no time limit on the period between the disposal and when death occurs.

7. Multiple Residences

Only one residential property will qualify. It will be down to the personal representatives to nominate which residential property should qualify if there is more than one in the estate.

A property which was never a residence of the deceased, such as buy-to-lets, cannot be nominated.

8. Basic IHT threshold frozen

While clients may be getting some additional nil rate band to set against the family home, the basic IHT nil rate band will be frozen at £325,000 until the end of 2020/21 tax year.

When combined with the full RNRB of £175,000 in 2020/21 this would provide a married couple with the promised £1M nil rate band.

9. Joint tenants and the trap for large estates

Some clients may miss out on the additional Residential Nil Rate Band by not ensuring that their estates are shared in the most efficient way. There are essentially two ways by which a residential property can be jointly owned.

Joint tenancy

As joint tenants, each individual owns the whole of the property – or put another way, each individual has a 100% stake in the property’s value.  If one individual dies, their part of the property automatically passes to the other person. You can’t leave part of the property to someone else in a Will,  in that the other person already owns the property.

Tenants in common

As tenants in common, individuals own a separate share of the property, and these shares don’t have to be equal. For example, one individual may own 75% of a property, while the other owns 25%. It is more common for individuals to own 50% of the property each, but in planning an individual’s assets to maximise the benefits of RNRB,  it may sometimes be beneficial for the property to be owned in different percentages.

Each individual owner can leave their share of the property to whoever they choose in a Will when they die. They may also leave their share of the property in a Trust for example into a Discretionary Gift Trust. Care must be taken if assets are transferred on the first death into a Trust, in that this in itself may mean that they will not benefit from the RNRB.

Planning opportunities. – Changing how a property is owned.

Many people will hold the family home as joint tenants. On the first death, this means the house passes to the surviving owner with no IHT because of the spouse exemption. The RNRB is not used on the first death, with the surviving spouse inheriting the full unused allowance. But if the combined estate on the second death is greater than £2 million, then both RNRBs could be lost due to tapering.

Switching property ownership into Tenants In Common, will allow each spouse to control how the property passes on death, and potentially preserve their entitlements to the RNRB by keeping each partner’s assets below £2 million.

They could sever the Joint Tenancy of their home and change the ownership of the property to Tenants in Common. They could then change their Wills, so that on the first death, they leave a share of the value of their property up to the value of the RNRB, directly to their children. This would utilise one Residence Nil Rate Allowance on the first death.

On the second death, as long as the value of their estate was less than £2 million, then they would benefit from another RNRB. However, if on the second death the value of the estate was still greater than £2 million,  they would lose the second RNRB. The family would have benefited from at least one entitlement to the residential allowance,  through planning ahead in this way.

In an attempt to qualify for two lots of the RNRB, additional planning could be done to further reduce the value of the assets passing to the surviving spouse on the first death. The purpose of this would be to try and keep the value of the estate below £2 million on the second death.

The value of the estate on the first death could be further reduced,  if through their will, the deceased also gave away up to their ordinary nil rate band (currently £325,000) into a Discretionary Trust. In total, the survivor’s estate could be reduced by up to £500,000 so increasing the chances that the total estate on the second death will be below the £2 million. This would ensure that the RNRB would also be available on the second death.

In short there are planning opportunities to secure the Residence Nil Rate Allowance on the first death for most couples and also on the second death for some couples. However individuals would  need to consider the potential pitfalls and weigh up the benefits of this type of planning. It would be important that individuals consider all the usual potential issues that could arise such as fall out with children, children divorcing or becoming bankrupt etc and for those reasons they may prefer to leave everything to the spouse and leave it to them to consider varying the will to include this gift after death.

10. Reviewing wills

It makes sense to keep Wills constantly under review to cater for changing circumstances. And that also includes ensuring legislative changes do not adversely impact upon what the deceased would have wanted.

Many existing Wills include passing the family home into a Discretionary Trust for example. Due to the introduction of the RNRB, this could mean that individuals would not qualify for the new Residential Nil rate allowance and so could see their executors paying as much as an extra £140,000 in inheritance tax. It is important that assets to the value of the RNRB are transferred directly to the children prior to any other residential assets being transferred into a Discretionary Trust.

A deed of variation to a will may come to the rescue for some, where property is passed to an individual. But it can be near impossible to vary a transfer into a Discretionary Trust which has a wide class of beneficiaries as agreement will be needed from all possible beneficiaries.

Advice from an appropriately qualified solicitor is advisable when reviewing your Wills.


Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

The Financial Conduct Authority does not regulate Wills, Tax and Trust advice.