Inheritance Tax: What is the Nil-rate band?

Most people are familiar with the inheritance tax threshold; the £325,000 nil-rate band above which estates start to pay tax at 40%. Fewer know about a second allowance worth up to £175,000 that sits on top of it, specifically for families leaving their home to their children or grandchildren.

That allowance is the residence nil-rate band. Used correctly, it can reduce an IHT bill significantly or eliminate it entirely. This guide explains what the residence nil-rate band is, who qualifies, how to calculate it, and how to make sure it is claimed.

Contents

1. What is the residence nil-rate band?
2. How much is it worth?
3. Who qualifies?
4. What counts as a direct descendant?
5. Worked examples
6. The £2 million taper: when the RNRB starts to reduce
7. The downsizing addition: what if you no longer own a home?
8. Transferring unused RNRB from a deceased spouse
9. How to claim the residence nil-rate band
10. The RNRB and the proposed death tax
11. Residence nil-rate band FAQs
12. How Level can help

What is the residence nil-rate band?

The residence nil-rate band (RNRB) is an additional inheritance tax allowance introduced in April 2017. It applies when a family home (or assets of equivalent value) passes from a deceased person’s estate to their direct descendants, such as their children or grandchildren.

It works in the same way as the standard nil-rate band: it is an amount of the estate’s value that is sheltered from inheritance tax at 40%. The two allowances stack on top of each other, so an eligible individual can shield up to £500,000 from IHT. A married couple or civil partners can shelter up to £1 million between them.

In plain terms: the RNRB is a bonus IHT threshold available to families who leave their home to their children or grandchildren. It was introduced because rising house prices were pulling family homes into IHT scope even for people who would not previously have considered themselves wealthy.

How much is it worth?

Both the NRB and the RNRB are frozen until at least April 2030, confirmed in law through the Finance Act 2024–25. As house prices and estate values continue to rise, more families will be pulled into IHT scope. The RNRB will become more important, not less.

Who qualifies?

The RNRB is not automatic. A set of conditions must be met for an estate to claim it.

The property must form part of the estate

The deceased must have owned a residential property  (their home or a former main residence) that forms part of the estate at the date of death. The property does not have to be the most valuable asset, but it must have been the deceased’s home at some point. A buy-to-let property that was never lived in by the deceased does not qualify.

The property must pass to direct descendants

The home (or a share of it) must be inherited by direct descendants. If it passes to a sibling, a friend, a niece or nephew, or a charity, the RNRB does not apply even if those beneficiaries are named in a valid will.

The RNRB cannot exceed the value passing to descendants

If the qualifying property is worth less than £175,000, the RNRB is capped at the property’s value. For example, if a property worth £120,000 is the only qualifying asset left to children, the maximum RNRB claimable is £120,000 and not the full £175,000.

The estate must be below £2 million

The RNRB begins to taper away once the total estate exceeds £2 million, see the taper section below.

What counts as a direct descendant?

HMRC defines direct descendants broadly. The following all qualify:

• Children and stepchildren
• Adopted children
• Foster children (in some circumstances)
• Grandchildren and great-grandchildren
• The spouses or civil partners of any of the above (including widows and widowers)

The following do not qualify as direct descendants:

• Nieces and nephews
• Brothers and sisters
• Unmarried partners (regardless of how long they have been together)
• Friends or other named beneficiaries

There is one nuance worth noting. If the property is split between a direct descendant and someone else ( a nephew, for example ) the RNRB is capped at the share passing to the direct descendant. A house worth £300,000 split equally between a child and a nephew allows a maximum RNRB of £150,000, not £175,000.

Worked examples

Example 1: Single person leaving home to children

Without the RNRB, the same estate would have paid £110,000 in IHT, a difference of £70,000.

Example 2: Married couple, second death, full allowances transferred

This is the most common scenario where the RNRB is most powerful: the second death in a married couple, where both the standard and residence allowances are doubled.

Example 3: Estate below the property value threshold

The £2 million taper: when the RNRB starts to reduce

For larger estates, the RNRB does not disappear suddenly but it tapers. For every £2 by which the total estate exceeds £2 million, the available RNRB reduces by £1.

The taper applies to the total estate value, not just the value of the property. A couple with a combined estate of £2.5 million could lose a significant portion of the RNRB they expected to claim.

Planning ahead can help. Gifting, trusts, and other mechanisms can sometimes bring an estate below the £2 million threshold and preserve the allowance. Consult a specialist solicitor or tax adviser before making any changes.

The downsizing addition: what if you no longer own a home?

A common concern is what happens when someone has sold their family home perhaps to move into care or to a smaller property, and no longer owns a qualifying residence at the date of death. Without a specific rule, this would mean losing the RNRB entirely.

HMRC’s downsizing addition addresses this. If the deceased sold or downsized after 8 July 2015, the RNRB can still be claimed even with no property in the estate. The condition is that assets of equivalent value must pass to direct descendants.

The rules are complex. The calculation requires careful records which particularly evidence the former property’s value and sale date. The downsizing addition is claimed using form IHT435 alongside the main IHT account (IHT400).

Example: In June 2018, George sold his family home for £400,000 and moved into a care home. He died in 2026 with an estate of £380,000, leaving everything to his children. Because he sold a qualifying property after July 2015 and his children inherited assets of equivalent value, his estate can still claim the RNRB preserving up to £175,000 of additional allowance.

Transferring unused RNRB from a deceased spouse

When the first spouse or civil partner dies, any unused RNRB does not disappear. It transfers to the survivor’s estate.

How the transfer works

The transfer is expressed as a percentage of the RNRB not a fixed amount. If the first spouse used none of their RNRB, 100% transfers. This is typically the case when assets passed entirely to the surviving spouse, who is IHT-exempt.

That percentage is applied to the RNRB in force at the time of the second death. So if 100% of an unused RNRB transfers and the RNRB is £175,000 at the second death, the total available RNRB is £350,000.

When the first spouse died does not matter

The transfer is available regardless of when the first spouse died, even before the RNRB was introduced in April 2017.

It is not applied automatically

The executor of the surviving spouse’s estate must claim it. Use HMRC form IHT435 for the RNRB itself and IHT436 for the transferred element.

This catches many families out. An executor who assumes HMRC will apply the transfer without being asked may file an IHT return that overstates the tax due. The estate then pays more than it needs to.

How to claim the residence nil-rate band

The RNRB is not applied automatically by HMRC. It must be claimed as part of the IHT return.

Step-by-step

1. Establish whether the conditions are met
Check whether the estate includes a qualifying residential property (or whether the downsizing addition applies), and confirm that direct descendants are named as beneficiaries in the will.

2. Value the estate
The total estate value determines whether the £2 million taper applies. An accurate valuation including property, savings, investments, pensions, and business assets is essential before calculating the RNRB.

3. Complete form IHT400
This is the main HMRC inheritance tax account, required for estates where IHT is payable.

4. Complete form IHT435
This schedule is used to claim the RNRB and, where applicable, the downsizing addition. It asks for the property address, its market value at the date of death, the percentage passing to direct descendants, and details of any downsizing claim.

5. Complete form IHT436 (if applicable)
If the estate is also claiming an unused RNRB transferred from a deceased spouse or civil partner, IHT436 is the correct form. Note: IHT436 handles the transferred residence allowance only, the transferred standard nil-rate band is claimed separately on IHT402.

6. Submit within 12 months of the date of death
All IHT400 forms and supporting schedules must reach HMRC within 12 months. Missing this deadline without reasonable excuse can result in penalties.

The RNRB and the proposed death tax

The RNRB’s future is caught up in the wider debate about estate taxation. In July 2026, The Telegraph reported that Andy Burnham was considering replacing inheritance tax with a flat 10% levy on all estates. Under that proposal, there would be no nil-rate band and no residence nil-rate band.

Under the proposed flat levy:

• A couple with a combined estate of £800,000 (including a family home) who currently pay £0 in IHT would face a bill of £80,000
• The £175,000 RNRB and the £325,000 NRB would both cease to exist
• Families who have structured their wills to maximise the RNRB would find that planning redundant overnight

Downing Street stated on 29 July 2026 that there were “no plans” for the proposal. But the current rules are confirmed until at least April 2030. Families who have not checked their RNRB eligibility or reviewed their wills  should do so now, under the rules that are known.

For a full breakdown of the proposed levy and what it would mean for different estate types, read our guide: The proposed death tax explained.

Residence nil-rate band FAQs

Does the RNRB apply if the home is left in a trust?

Generally, no – assets held in a discretionary trust do not qualify for the RNRB because the beneficiaries do not inherit the property directly. However, certain types of trust (such as a bare trust or an immediate post-death interest trust) may qualify. This is a complex area and specialist legal advice is strongly recommended before using a trust in a will if RNRB preservation is a goal.

Can I claim the RNRB if I own more than one property?

Yes, but only one property qualifies. The executor nominates which residential property to use for the RNRB claim. The nominated property must have been the deceased’s main residence at some point.

Does the RNRB apply to buy-to-let properties?

No. A property that was never the deceased’s main residence including buy-to-let properties does not qualify for the RNRB, even if it is left to direct descendants.

What if the property is worth less than £175,000?

The RNRB is capped at the value of the qualifying property passing to direct descendants. If the property is worth £120,000, the maximum RNRB is £120,000.

Does the RNRB apply if I leave my home to my stepchildren?

Yes. Stepchildren are included in HMRC’s definition of direct descendants, provided they were the stepchild of the deceased – not simply a child of an unmarried partner.

What if my estate is worth more than £2 million?

The RNRB tapers by £1 for every £2 above £2 million. For an individual, it disappears entirely at £2.35 million. For a couple, it disappears entirely at £2.7 million. Careful estate planning ideally several years before death, can sometimes preserve the allowance.

Is the RNRB applied automatically by HMRC?

No. The executor must claim it by completing form IHT435 as part of the IHT400 submission. HMRC will not apply it without being asked. A missed claim means the estate pays more IHT than it is legally required to.

Can I claim the RNRB if I have already sold my home?

Potentially, yes through the downsizing addition. If you sold or downsized your home after 8 July 2015 and assets of equivalent value pass to direct descendants from your estate, a proportion of the RNRB may still be available. Claim using form IHT435.

How Level can help

Claiming the RNRB correctly can reduce an IHT bill by up to £70,000 per person, or eliminate it entirely for couples below £1 million. But even where the RNRB is applied in full, many estates still face a significant IHT bill. That bill is due before probate is granted. Estate assets cannot be released until it is paid.

Level provides estate funding specifically for this situation.

Funding decisions are made on the strength of the estate and not personal credit history. Level works with over 780 partner law firms across the UK and is the only top-ranked funder of its kind according to Chambers & Partners. In most cases, funds can be released within days.

Apply for funding today or call us on 020 7205 2870 to speak with a specialist.

Last reviewed: August 2026. This guide is for informational purposes only and does not constitute legal, tax or financial advice. Tax rules and thresholds can change. For advice specific to your estate, consult a qualified solicitor or tax adviser.