Residence Nil Rate Band (RNRB) – How Does it Work?

18/12/2021 - 8 minutes read

What is Residence Nil Rate Band (RNRB)

Residence Nil Rate Band (RNRB) was introduced in 2017 with the aim of protecting the family home from IHT. The RNRB, currently set at a maximum of £175,000 per person, is an additional IHT free amount over and above the standard IHT nil rate band (NRB), which is currently set at £325,000 and also frozen until April 2026.

Residence Nil Rate Band (RNRB) - How Does it Work?

Residence Nil Rate Band (RNRB) – How Does it Work?

Residence Nil Rate Band, together with the standard NRB, gives each individual a potential IHT free allowance of £500,000 (£325,000 + £175,000), or £1m for a married couple or civil partners. The IHT savings can therefore be considerable.

However, the Residence Nil Rate Band is reduced by £1 for every £2 of excess if the overall value of the deceased’s net estate exceeds £2m (otherwise known as the taper threshold). Where the estate is worth £2.25m or more, the Residence Nil Rate Band is lost completely.

For IHT planning purposes, it is important to note that whilst this value excludes lifetime gifts (even if those gifts were made within the last seven years), it does include business and agricultural property.

How does Residence Nil Rate Band work?

To qualify for the RNRB, the deceased must have held a qualifying residential interest (QRI) at death, or the ‘downsizing provisions’ must apply.

A QRI is broadly an interest in a residential property that has been the deceased’s residence at some point.

A QRI does not have to be the deceased’s main residence and could include a variety of less conventional homes if they have been used as their residence. Whilst buy-to-let properties cannot qualify as QRIs, a property that was once lived in by the deceased, but has been later let to tenants, can be. Holiday homes – whether in the UK or overseas – could theoretically qualify provided they are within the scope for IHT and have been used as the deceased’s residence.

Where the deceased owned more than one QRI, the deceased’s personal representatives must nominate which property will utilise the RNRB as it cannot be divided across two properties.

To claim the RNRB, the QRI must be ‘closely inherited’ whereby, on the deceased’s death, it passes to any one or more of:

  • – the deceased’s children (which could include adopted, fostered or stepchildren) or grandchildren;
  • – the spouses or civil partners of those children or grandchildren; or
  • – the widows, widowers, surviving civil partners of those children or grandchildren if not remarried at the date of the death of the property owner.

What happens if the value of the home is less than the maximum Residence Nil Rate Band

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 RNRB to the whole taxable estate, not just to the value of the home, so the whole estate shares the benefit of the RNRB.

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 wife’s, husband’s or civil partner’s estate when they die and leave a home to their direct descendants.


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 in the tax year 2020 to 2021 is £175,000.

RNRB for the estate£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 RNRB- £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 RNRB for this estate was £175,000, but the flat left to the son is only worth £100,000. So only £100,000 of the RNRB applies.

The remaining Residence Nil Rate Band (RNRB) of £75,000 is available to transfer to the husband’s estate. There’s no unused basic Inheritance Tax threshold to transfer.

What happens if the home is in a trust

A home or a share of one could be either:

  • – held in a trust before a person dies
  • – transferred to a trust when they die

The availability of the RNRB will depend on the type of trust.

This is because the type of trust will affect whether HMRC treats:

  • – the home as part of a person’s estate for Inheritance Tax purposes
  • – that person’s direct descendants as inheriting the home

How to work out and apply the RNRB

Use this calculator, to work out:

  • – how much RNRB the estate may get
  • – the RNRB if a person downsized or sold their home
  • – any unused RNRB 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

Post-death planning

If the RNRB is not available on death, the following action could be taken within two years of death:

  • – by beneficiaries under the will, making a deed of variation to redirect the home (or a share of it) to a direct descendant; or
  • – where the deceased has left their home to a discretionary will trust, by trustees exercising a power of appointment, passing the property to a direct descendant.

The direct descendant(s) will then be regarded as inheriting the property directly from the deceased for the purposes of IHT and the RNRB.

How can MCL Accountants help?

Contact MCL Accountants on 01702 593 029 if you have any queries on the Residence Nil Rate Band or if you need any assistance with the preparation and submission of your business accounts or self-assessment tax returns to HMRC.