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Planning now for the residence nil-rate band

Graeme Robb, senior technical manager at Prudential, writes about the residence nil-rate band and the advice opportunities it presents for you when tax year-end planning with your clients.

On our Planning Matters hub, we considered a widow, Margaret, and a married couple, John and Anne, for whom the residence nil-rate band (RNRB) is influencing planning even before its introduction. The broad idea behind the RNRB is that, by 2020/21, the allowance of £175,000 will work in tandem with the existing £325,000 nil-rate band (NRB) to enable a ‘couple’ to pass on a total of £1m to children/grandchildren free of inheritance tax. If only it were that simple…


An estate will be entitled to the RNRB if the individual dies after 5 April 2017. It applies only to the estate. It doesn’t apply to gifts made during a person’s lifetime even if those gifts become taxable because they’ve been made within seven years of death.

The individual must have owned a home, or a share of one, so that it’s included in their estate. Direct descendants of the individual must inherit the home, or a share of it. For estates valued at more than £2m, the RNRB (and any transferred RNRB) will be gradually withdrawn or tapered away.

A direct descendant of an individual is defined as a child, grandchild or other lineal descendant of the individual (includes a spouse or civil partner of a lineal descendant – including their widow, widower or surviving civil partner). A child will include step, adopted and foster children, and also a child where the individual was appointed as a guardian or special guardian for that child when they were under 18.

Nephews, nieces, siblings and other relatives are not included.

The home must be left to direct descendants so that it becomes part of the beneficiaries’ estate following the death. Where a home is left to beneficiaries who are a mixture of direct descendants and other individuals, the value of the home must be apportioned between direct descendants and others.

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. Gifts with reservation will qualify because HMRC treats the home as being included in the estate. So the RNRB may be available for that home if it’s given away to a direct descendant.

The maximum available amount of the RNRB will increase yearly, and for deaths in the following tax years it will be:

  • £100,000 in 2017/18
  • £125,000 in 2018/19
  • £150,000 in 2019/20
  • £175,000 in 2020/21

In later years, the maximum RNRB will increase in line with inflation (based on the Consumer Prices Index).

For married couples and civil partners, any unused RNRB can be transferred when the surviving spouse or civil partner dies after 5 April 2017 regardless of when the first death occurred (see case study 2 later).

Quantifying the RNRB

The amount of the RNRB due for an estate will be the lower of:

  • The value of the home, or share, that’s inherited by direct descendants
  • The maximum RNRB available for the estate when the individual died

Any transferred RNRB from a deceased spouse’s or civil partner’s estate can be added to the amount of the RNRB due for an estate. The order of set-off is then as follows:

  1. The combined RNRB is set against the value of the estate, then
  2. The existing NRB (and any transferred NRB) is set against the remaining value of the estate.

If the value of the home is less than the maximum available RNRB, the unused amount of RNRB can’t be set against the other assets in the estate. But, the unused RNRB would be available to transfer to the survivor’s estate when they die and leave a home to their direct descendants.


Case study 1

A client dies in 2020/21 leaving a flat worth £100,000 and other assets of £400,000 to her son. She leaves the rest of her assets of £500,000 to her husband.

·       RNRB will be £100,000 (being the lower of £100,000 and £175,000)

·       NRB will be £325,000

Total value of estate        £1,000,000

Exempt gift to spouse      (£500,000)

RNRB                                   (£100,000)

Taxable                                 £400,000

NRB                                      (£325,000)

Subject to IHT                        £75,000

RNRB – unused amount transferable to husband’s estate = £75,000

NRB  – fully utilised (no transfer to husband’s estate)

Transfer of any unused RNRB to spouse or civil partner

If the RNRB wasn’t fully used upon the first death, the unused percentage (not the unused amount) can be transferred to the survivor in a similar way to the existing NRB. This ensures that, if the maximum amount of RNRB increases over time, the survivor’s estate will benefit from that increase. The unused RNRB is known as the ‘brought forward’ allowance.

Where the first of the couple died before 6 April 2017, 100 per cent of the RNRB will be available for transfer unless the value of their estate exceeded £2m and the RNRB is tapered away.


Case study 2

A client died in 2015 and left his entire estate to Charlotte, his wife. This was prior to the RNRB being available.

On his death, the RNRB simply couldn’t have been used, so 100 per cent is available to transfer to his wife’s estate. She subsequently dies in 2019/20 and leaves all her estate, including a home worth £400,000, to her daughter.

In 2019/20, the maximum available RNRB is £150,000.

His wife’s executors make a claim to transfer the unused RNRB from her late husband.

Total RNRB for his wife’s estate will be £300,000 (£150,000 + (100% x £150,000))

If an individual has had more than one spouse or civil partner and they make a claim to transfer the unused RNRB from each one, the total transferred RNRB cannot be more than 100 per cent of the maximum available amount. Planning for remarried widows/widowers was considered in the Planning Matters case study of John and Anne.

The home that the survivor lived in and leaves to their direct descendants doesn’t have to be the same home that he/she lived in with their late spouse or civil partner to qualify for the RNRB. 

What is a home?

The home that is included in the deceased’s estate must have been lived in at some stage by the deceased. If the deceased owned more than one home, the personal representatives can nominate which one should qualify for the RNRB. A property that the deceased owned, but never lived in, such as a buy-to-let property, will not be eligible for the RNRB.

It doesn’t have to be in the UK but it must be within the scope of IHT. Those domiciled in the UK are subject to IHT on their worldwide assets. Non-UK domiciled individuals are subject to IHT only on their assets in the UK, so in those cases the home must be located in the UK.

The value of the home for RNRB purposes will be the open-market value of the property less any liabilities secured on it such as a mortgage.

When is a home inherited?

Direct descendants will inherit a home if it’s left to them:

  • On death in the deceased’s will
  • Under the rules of intestacy
  • By some other legal means as a result of the person’s death

Where the home is not specifically mentioned in the deceased’s will, it can be inherited as part of the residue of the estate, and where the residue passes to a number of different people, HMRC treats each as inheriting a proportion of the home.

Direct descendants must become entitled to the home on the death of the deceased.


Case study 3

In a client’s will, there is a condition that her grandchildren have to reach age 25 before they can inherit her home. In cases such as this where the property is held in a trust subject to a contingency, the RNRB wouldn’t apply. This is because the grandchildren have not inherited the home on her death.

An estate could still be eligible for the RNRB if the deceased’s personal representatives sell the home as part of the administration of the estate and pass the sale proceeds to the direct descendants.


Case study 4

A client died in 2019/20 leaving his house, valued at £500,000, to three grandchildren as part of the residue of his estate (the maximum RNRB in 2019/20 is £150,000).

The three grandchildren don’t want to keep the property jointly. The personal representatives sell the property and distribute the sale proceeds between the three grandchildren.

As the home passes to the grandchildren under the terms of his will, RNRB of £150,000 will be available.

The direct descendants can also inherit the home if it’s left to them as a result of amending the deceased’s will by a deed of variation.


The subject of trusts occurs where a home, or a share of one, is held in trust before an individual’s death; or where it is transferred to trustees on death. The availability of the RNRB will depend on the type of trust as this determines whether HMRC treats the home as part of a person’s estate for IHT purposes. It will also determine whether HMRC treats that person’s direct descendants as inheriting the home.

Where the deceased owned the home outright, the lineal descendants can inherit:

  • Absolutely
  • In a qualifying interest in possession trust, or
  • If a child of the deceased, in a trust for bereaved minors or an 18-25 trust

Gifts into a discretionary will trust will not benefit from the RNRB (even if the beneficiaries are limited to lineal descendants).

Where the deceased had an interest in possession, the RNRB will not be available unless the lineal descendants either:

  • Receive an absolute interest, or
  • A successive qualifying interest in possession is created (i.e. a disabled person’s interest)

The RNRB will be reduced by £1 for every £2 that the value of the estate is more than the £2m taper threshold, which may increase in line with inflation after 2020/21.

For taper purposes, the value of the estate is the total of all the assets less any debts or liabilities. The following are ignored:

  • Exemptions such as spouse or civil partner exemption
  • Reliefs such as agricultural or business property relief

Also, ignore assets that are specifically excluded from IHT (excluded property).

Tapering can also reduce the amount of RNRB available to transfer to a surviving spouse or civil partner, even if no RNRB is used on first death.


Case study 5

A client dies in 2018/19 leaving an estate valued at £2,100,000.  She leaves her £450,000 home to her husband and everything else to her children.

Maximum RNRB in 2018/19 is £125,000.

Her children don’t inherit the home, so her estate cannot use any RNRB.

The RNRB available to her estate is reduced by £50,000. If she had left her home to her children, the RNRB would have been £75,000. So the amount of unused RNRB is £75,000. In other words, the percentage of unused RNRB is 60 per cent.

Her husband dies in 2020/21 when the maximum RNRB is £175,000.

His estate is £1.8m (including the home now worth £500,000, which is left to his children).

The amount of RNRB available to transfer to his estate is £175,000 x 60% = £105,000.

Her husband’s estate qualifies for RNRB of £175,000 plus a further £105,000 transferred RNRB from her.


If an estate doesn’t qualify for the full amount of RNRB, the estate may be entitled to a downsizing addition if all these conditions apply:

  • The deceased disposed of a former home and either downsized to a less valuable home or ceased to own a home on or after 8 July 2015
  • The former home would have qualified for the RNRB if it had been kept until death
  • At least some of the estate is inherited by the deceased’s direct descendants

Where the deceased has downsized to a less valuable home, there will be lost RNRB only when the value of the home at death is below the maximum RNRB available to the estate.

The downsizing addition cannot exceed the maximum amount of RNRB that would have been available if the disposal or downsizing hadn’t happened.

If the deceased disposed of more than one home between 8 July 2015 and their date of death, the personal representatives can choose which disposal is taken into account to calculate the downsizing addition.

Where the downsizing occurs before 6 April 2017, HMRC treats the maximum available RNRB at that time as £100,000.

Claiming the RNRB

Although no formal claim is required, HMRC will need details of the amount due and supporting information on the IHT return following a death. A claim will however be necessary to transfer any unused RNRB from the estate of a deceased spouse or civil partner. The personal representatives of the survivor must make this claim within two years of the end of the month in which the person dies. In addition, a claim will be required for any additional RNRB as a result of downsizing/disposal before death. Again, the deceased’s personal representatives have a two-year timescale. These time limits can be extended in some circumstances.

In summary

The RNRB provisions will be confusing for clients and will therefore represent an advice opportunity. It should be remembered that it applies only to transfers on death and therefore property gifted prior to death will not qualify. For high-net-worth clients, the £2m threshold will be particularly relevant and lifetime gifting (of other assets) may prevent a restriction of the RNRB. This planning was explored in Margaret’s Planning Matters case study. The threshold applies to the value of the estate on death and does not include failed PETs. Bear in mind also that, if all assets are passed to the surviving spouse/civil partner and the survivor passes away with a combined estate of more than £2.7m, the RNRB will be lost in its entirety.

Although welcome, the RNRB gives rise to a further complexity in the world of estate planning. More than ever, advisers and solicitors need to work together for the benefit of clients.

You can access all the case studies as well as other relevant support material on our dedicated Planning Matters hub.



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