The residence nil-rate band — extra £175,000 IHT allowance for leaving your home to children
Quick answer: The residence nil-rate band (RNRB) gives an extra £175,000 of Inheritance Tax allowance when you leave a qualifying home to direct descendants.
The residence nil-rate band (RNRB) gives an extra £175,000 of Inheritance Tax allowance when you leave a qualifying home to direct descendants. Combined with the £325,000 nil-rate band and full spousal transfer, a couple can pass up to £1 million tax-free.
Last reviewed:
Primary source: https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band
Who counts as a direct descendant
Direct descendants are children (including step-children, adopted children and foster children), grandchildren and their descendants. Spouses and civil partners of direct descendants also qualify, including widows / widowers who haven't remarried.
Nieces, nephews, siblings, parents and unmarried partners are not direct descendants and do not unlock the RNRB. This is one of the rules that surprises childless single people, who only get the £325,000 main band.
Leaving the home into a discretionary trust normally fails the 'closely inherited' test unless the trust deed identifies the direct descendants as the qualifying class — IPDI (immediate post-death interest) trusts and bare trusts for direct descendants do qualify.
How the £2 million taper works
The RNRB tapers by £1 for every £2 the estate exceeds £2 million (after debts but before reliefs and exemptions). At an estate value of £2.35 million the individual £175,000 RNRB is fully lost.
For couples claiming both their own and the deceased spouse's RNRB, the tapering point is still £2 million per person — so a £2.7 million combined estate at the second death loses both bands.
Lifetime giving to bring the estate under £2 million is one common planning move. Gifts within 7 years of death are added back for taper purposes, so the clock matters.
Downsizing addition
Without protection, downsizing or moving into a care home could remove the qualifying home and lose the RNRB. The downsizing addition fixes this where the disposal happened on or after 8 July 2015.
Three conditions: (1) the person sold or moved out of a former home on or after 8 July 2015; (2) any remaining home, plus cash or other assets equal to the lost RNRB, passes to direct descendants on death; (3) a claim is made by the personal representatives on form IHT435 and IHT436.
Without the form, the relief is missed — many estates lose it because executors don't realise it exists.
Common questions
- Can a married couple really pass on £1 million tax-free?
- Yes — but only with both the main nil-rate band (£325,000 each) and the residence nil-rate band (£175,000 each), where the home is closely inherited by direct descendants and the estate is under the £2 million taper. Childless couples max out at £650,000.
- Does the home have to be the main residence?
- It must have been the deceased's residence at some point — not necessarily their main home at death, and not necessarily owned for any minimum period. Buy-to-let only properties don't qualify.
- Is the RNRB lost if the home is sold in probate?
- No. The test is whether the home (or the downsizing addition equivalent) passes to direct descendants on death. If the will leaves the home to qualifying beneficiaries, they can sell after death without losing the RNRB.