What Is the Residence Nil Rate Band?

The residence nil rate band sits alongside the standard nil rate band of £325,000, potentially allowing a total of up to £500,000 to be passed on tax-free by one person, where both allowances are fully available. For a married couple who can transfer both allowances between them, this can mean a substantial combined amount can pass on the second death before inheritance tax applies, subject to meeting the conditions.

The key condition is that a home in which the deceased lived at some point must be left to direct descendants: children (including adopted, fostered and stepchildren), grandchildren and their spouses or civil partners. It does not extend to nieces, nephews, siblings or friends, even if they were close to the deceased or lived with them.

The definition of direct descendant is fairly broad, covering biological children, adopted children, stepchildren and foster children, along with their own children and further descendants. It also extends to the spouses and civil partners of those descendants, but not to unmarried partners of a descendant unless they otherwise qualify.

If a home is left to someone outside this definition, for example a sibling, a friend, or a charity, the residence nil rate band is not available on that gift, even though the standard nil rate band and other exemptions may still apply.

The residence nil rate band is reduced for estates above a set value threshold, tapering away by £1 for every £2 the estate's value exceeds that threshold. This means very large estates can lose some or all of the residence nil rate band, even if a qualifying home is left to direct descendants.

Because the taper is based on the total value of the estate before reliefs, not just the value of the home, estates with substantial other assets can be affected even if the property itself is modest in value. Executors and those doing estate planning need to look at the whole estate, not the property alone, to work out how much of the allowance survives.

There are special rules to protect the residence nil rate band for people who downsize to a smaller home, or who sell their home entirely, for example to move into care, after a certain date. Broadly, if a smaller property or no property at all is left in the estate, but other assets of equivalent value are left to direct descendants, part or all of the residence nil rate band may still be claimed.

These downsizing rules are detailed and depend on specific conditions and timing being met. If downsizing or selling a home is something you are considering, it is worth checking the current GOV.UK guidance or speaking to a solicitor or tax adviser to make sure the allowance is not lost unnecessarily.

To make the most of the residence nil rate band, a will needs to leave the home, or an appropriate value from the estate, to qualifying direct descendants, and any trust arrangements involving the property need to be structured carefully, since some types of trust can affect whether the allowance is available at all.

My Posh Will is an online guided will service for England and Wales that helps you set out clearly who should inherit your home. A single will costs £69 and mirror wills cost £89, both one-off payments with lifetime access. Where an estate is large, involves trusts, or downsizing has taken place, use our suitability check, as this is an area where a solicitor or tax adviser should usually be involved.