How to Claim the Residence Nil Rate Band for Inheritance Tax?

05/08/2023 - 10 minutes read
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The Residence Nil Rate Band (RNRB) for inheritance tax is used to reduce the inheritance tax if the value of the estate is worth more than the basic inheritance tax threshold.

RNRB for Inheritance tax thresholds and interest rates

Find out the residence nil rate band thresholds from 2017 to 2026.

The threshold increases every year in line with inflation, based on the Consumer Price Index.

How to Claim the Residence Nil Rate Band for Inheritance Tax?

How to Claim the Residence Nil Rate Band for Inheritance Tax

How to work out and apply the Residence nil rate band for Inheritance tax

Use this calculator to work out:

  • – how much residence nil rate band the estate may get
  • – the residence nil rate band if a person downsized or sold their home
  • – any unused residence nil rate band for transfer to the estate

To use this calculator, you’ll need to have:

  • – an IHT400 account form with the value of what’s in the estate already worked out
  • – an IHT435 form if you have already started filling one in
  • – a completed IHT436 form if you are transferring any unused additional threshold from another estate

Apply the residence nil rate band for Inheritance tax

Add the residence nil rate band for Inheritance tax to the basic Inheritance Tax threshold if the person and their estate meet the qualifying conditions.

This higher threshold does not mean that the home is exempt from Inheritance Tax but that can be the result in some cases.

Additional residence nil rate band for Inheritance tax may also be available from a late spouse or civil partner’s estate.

  1. Add any transferred residence nil rate band that may be available from a late spouse or civil partner’s estate to the amount of the allowance due for an estate, to get a combined residence nil rate band.
  2. Take off the combined residence nil rate band from the value of the estate.
  3. Take off the basic Inheritance Tax threshold and any additional transferred unused basic threshold from the rest of the value of the estate.

Usually, the order you apply the residence nil rate band and basic Inheritance Tax threshold will make no difference.

However, in some cases, it will affect the amount of any unused additional or basic Inheritance Tax threshold available to transfer to a spouse or civil partner’s estate.

Example

A man dies in the tax year 2020 to 2021 and leaves to his children:

  • a home worth £300,000
  • other assets worth £190,000

The maximum available residence nil rate band in the tax year 2020 to 2021 is £175,000.

residence nil rate band for Inheritance tax £175,000 (the lower of £300,000 and £175,000)
basic Inheritance Tax threshold £325,000
estate value £490,000
less residence nil rate band – £175,000
remaining value £315,000
less basic Inheritance Tax threshold – £315,000
amount that Inheritance Tax is due on £0

The full residence nil rate band for Inheritance tax has been used up, but the unused £10,000 out of the basic Inheritance Tax threshold of £325,000 would be available to transfer to the man’s wife.

What happens if a home is worth less than the maximum residence nil rate band for Inheritance tax

The home inherited by direct descendants does not have to be worth more than the basic or transferred basic threshold, to get the residence nil rate band.

You apply the residence nil rate band to the whole taxable estate, not just to the value of the home, so the whole estate shares the benefit of the tax-free residence allowance.

If the home is worth less than the maximum available residence nil rate band, you cannot set the unused amount against the other assets in the estate. But, the unused amount would be available to transfer to their spouse or civil partner’s estate when they die and leave a home to their direct descendants.

Example

A woman dies in the tax year 2020 to 2021 leaving:

  • – a flat worth £100,000, and other assets of £400,000 to her son
  • – the rest of her assets of £500,000 to her husband, which is exempt from Inheritance Tax

The maximum available residence nil rate band for Inheritance tax in the tax year 2020 to 2021 is £175,000.

residence nil rate band for Inheritance tax £100,000 (the lower of £100,000 and £175,000)
basic Inheritance Tax threshold £325,000
estate value £500,000 (the £500,000 left to the husband is exempt)
less residence nil rate band – £100,000
remaining value £400,000
less basic Inheritance Tax threshold – £325,000
amount that Inheritance Tax is due on £75,000

The maximum possible residence nil rate band for Inheritance tax was £175,000, but the flat left to the son is only worth £100,000. So only £100,000 of the tax-free residence allowance applies.

The remaining residence nil rate band of £75,000 is available to transfer to the husband’s estate. There’s no unused basic Inheritance Tax threshold to transfer.

Gifts and lifetime transfers

Unlike the basic Inheritance Tax threshold, the residence nil rate band does not apply to gifts and lifetime transfers, such as:

  • – transfers into trusts
  • – the value of any gifts made in the 7 years before the person that died gave them away (which are then taxable)

Example

A woman dies in the tax year 2020 to 2021 and leaves to her daughter:

  • – a house worth £200,000
  • – other assets worth £250,000

During the 7 years before she died she gave assets worth £100,000 to her nephew.

The maximum available residence nil rate band in the tax year 2020 to 2021 is £175,000.

residence nil rate band for Inheritance tax £175,000 (the lower of £200,000 and £175,000)
basic Inheritance Tax threshold £325,000

Set the basic Inheritance Tax threshold of £325,000 against the value of the lifetime gifts of £100,000:

taxable lifetime gifts add up to £100,000
less basic Inheritance Tax threshold – £100,000
amount that Inheritance Tax is due on £0

This leaves £225,000 of the basic Inheritance Tax threshold to use against the estate.

estate value £450,000
less residence nil rate band – £175,000
remaining value £275,000
less remaining basic Inheritance Tax threshold – £225,000
amount that Inheritance Tax is due on £50,000

The basic Inheritance Tax threshold applies to any lifetime transfers and any gifts made in the 7 years before someone dies. But the residence nil rate band does not. So the basic Inheritance Tax threshold could be completely used up by those transfers and gifts. But any residence nil rate band would still be available to reduce the tax on the estate.

Example

A man dies in the tax year 2020 to 2021 leaving to his granddaughter:

  • – a house worth £500,000
  • – other assets worth £250,000

He made gifts of £700,000 to his other grandchildren and nephew during the 7 years before he died.

The maximum available residence nil rate band in 2020 to 2021 is £175,000.

residence nil rate band for the estate £175,000 (the lower of £500,000 and £175,000)
basic Inheritance Tax threshold £325,000

Take away the basic Inheritance Tax threshold of £325,000 from the lifetime gifts of £700,000:

lifetime gifts £700,000
less basic Inheritance Tax threshold – £325,000
value of gifts that Inheritance Tax is due on £375,000

The lifetime gifts use up the basic Inheritance Tax threshold. So you pay Inheritance Tax on £375,000 worth of gifts.

But the residence nil rate band is still available to take off from the estate value:

estate value £750,000
less residence nil rate band – £175,000
estate value that Inheritance Tax is due on £575,000

For married couples and civil partners, you look at the position for each person’s estate separately when each dies. This would include each person’s share of the home if it’s owned jointly.

How can MCL Accountants help?

Contact MCL Accountants on 01702 593 029 if you have any queries on the residence nil rate band for Inheritance tax or if you need any assistance with the preparation and submission of your business accounts and self-assessment tax returns to HMRC.