Residence Nil-Rate Band Explained

Inheritance tax has a headline nil-rate band of £325,000, but many families can pass on more than that tax-free thanks to an extra allowance tied to your home.

The residence nil-rate band (RNRB) is an additional inheritance tax allowance of up to £175,000. It applies when you leave your main home to your direct descendants — children, grandchildren and their partners — sitting on top of the standard £325,000 nil-rate band.

In this insight, we explain how the RNRB works, how a couple can reach the widely quoted £1 million figure, and the tapers and additions you need to know about.

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Key Takeaways

• The RNRB adds up to £175,000 per person to the standard £325,000 nil-rate band, but only when a home passes to direct descendants.
• Married couples and civil partners can combine both allowances, giving a potential £1 million tax-free between them.
• The RNRB is reduced for larger estates — it tapers away for estates worth more than £2 million.
• A downsizing addition can protect the allowance if you sell or move to a smaller home in later life.

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What is the Residence Nil-Rate Band?

Inheritance tax is charged at 40% on the value of an estate above the tax-free thresholds. The main threshold is the nil-rate band of £325,000. The residence nil-rate band is a separate, additional allowance worth up to £175,000, introduced to help families pass on the family home.

It only applies where a residential property you have lived in is left to direct descendants. That means:

• Children (including adopted, foster and stepchildren)
• Grandchildren and other lineal descendants
• The spouses or civil partners of those descendants

Leaving your home to a sibling, a niece or nephew, or a friend does not qualify for the RNRB.

How Couples Reach the £1 Million Figure

You may have seen the claim that a couple can pass on £1 million free of inheritance tax. Here is where that comes from:

• Each person has a £325,000 nil-rate band
• Each person has a £175,000 residence nil-rate band
• £325,000 + £175,000 = £500,000 per person
• £500,000 × 2 = £1,000,000 for a couple

When the first partner dies, any unused nil-rate band and residence nil-rate band can be transferred to the survivor. So on the second death, the estate can benefit from both allowances combined — up to £1 million in total, provided a qualifying home passes to direct descendants and the estate isn't large enough to trigger the taper.

Single people, or those without children to leave a home to, cannot reach this figure and rely on the £325,000 band alone.

The £2 Million Taper

The residence nil-rate band is not available in full to everyone. For larger estates it is gradually withdrawn.

If the net value of your estate is more than £2 million, the RNRB is reduced by £1 for every £2 above that threshold. This means the extra allowance can be tapered away entirely for very large estates, leaving only the standard nil-rate band. Careful planning becomes especially important around this level.

The Downsizing Addition

A common worry is losing the RNRB by selling the family home to move somewhere smaller, or into care. The rules include a downsizing addition to deal with this.

If you sell your home or move to a less valuable property on or after 8 July 2015, you may still qualify for the RNRB you would otherwise have lost, as long as you leave the smaller home (or assets of equivalent value) to your direct descendants. This stops the tax system from penalising people for downsizing in later life.

Planning Ahead

The RNRB interacts with wills, gifts and trusts in ways that are easy to get wrong. For example, leaving your home into certain types of trust can affect whether the allowance applies. It's sensible to review your will and estate plan with these allowances in mind.

Related reading that may help:

• The inheritance tax 7 year rule on lifetime gifts
• Whether you should give your house to your children
• How to create a legacy for future generations

Frequently Asked Questions

Do I get the RNRB if I don't own my home when I die?

Possibly, through the downsizing addition, if you previously owned a qualifying home and left equivalent assets to direct descendants.

Can the RNRB be used against a buy-to-let or holiday home?

Only a property you have actually lived in as a residence can qualify. A pure investment property you never lived in does not.

What if I have no children?

The residence nil-rate band requires the home to pass to direct descendants, so without qualifying descendants you rely on the standard £325,000 nil-rate band.

Is the £1 million allowance automatic?

No. It depends on being a couple, having a qualifying home passing to direct descendants, and your estate staying below the £2 million taper threshold.

For the precise rules and your own position, check GOV.UK or speak to a qualified estate planning adviser.