The main residence nil rate band

The Residence Nil Rate Band (RNRB)

In the summer Budget in 2015 the chancellor announced a new additional rate band for inheritance tax (IHT), intended to apply where an individual passes their main residence to a direct descendant on death.

Following consultation during the autumn of 2015, HMRC issued a policy paper, together with draft clauses for inclusion within the Finance Bill 2016. Now that we have more detail of how it is intended the band will work it is possible to flesh out the proposals and how they will apply in practice.

The relief itself will not commence until 6 April 2017 and will be phased in as follows:

2017/18                £100,000

2018/19                £125,000

2019/20                £150,000

2020/21                £175,000

The allowance will then increase by the consumer price index (CPI) from 2021 onwards.

In the meantime, the individual nil rate band (and the transferable nil rate band) will be frozen at £325,000 until 2021.

It is intended that the residence nil rate band will be applied to the deceased’s interest in a residential property, which has been their residence at some point and which passes to a direct descendant on their death. For the purposes of the allowance a direct descendant is a child, step, adopted or foster child of the deceased and their lineal descendants. It will also include spouses/civil partners of the direct descendant, or their widow/widower, provided that the spouse/civil partner has not re-married before the death of the deceased.

The value of the allowance will either be the net value of the interest in the property after deduction of liabilities (but before reliefs and exemptions) or the maximum amount of the band. Any unused band will be transferable to the estate of the surviving spouse/civil partner, irrespective of when first death occurs, provided second death occurs after the introduction of the band on 6 April 2017.

The band will only be available on one residential property although the executors will be able to elect which property to apply the allowance to if there is more than one residential property in the estate. This means that a claim can be made for a property which is let at the time of death so long as the deceased resided in the property at some point. Buy to let properties, however, will not qualify as they will never have been a residence of the deceased.

Where the value of the deceased’s net estate exceeds £2 million (again, after deduction of liabilities but before reliefs and exemptions) the band will be reduced by £1 for every £2 that the net estate exceeds the limit. This is an important point to consider, since the executors will not be able to take into account business property relief or agricultural relief when considering the availability of the band.

In situations where the deceased has downsized or sold their residence the allowance will still be available provided the sale takes place after 8 July 2015. If, after this date, the deceased purchases a smaller property or no longer owns a residence the allowance will be applied to the smaller residence, and/or assets of an equivalent value, provided these are passed to a direct descendant. However, the total amount of the allowance will not be able to exceed the maximum residence nil rate band.

The technical detail of how the band will be calculated in cases where downsizing has occurred (multiple times in some instances) is complex and there are still areas of the draft legislation which require clarification before the Finance Bill becomes law.

Below are a number of examples of how the proposals are intended to work, subject (of course) to further changes by HMRC before the legislation is introduced.

Example 1

Mabel dies on 5 April 2017

Her estate comprises £80,000 cash and the marital home valued at £700,000. She leaves the residue of her estate to two granddaughters in equal shares.

She was widowed in September 2012 and the whole of her husband’s estate passed to her.

Since death occurs before the introduction of the RNRB no allowance is due. Executors are able to claim 100% of the transferable nil rate band (TNRB) in respect of her husband.


House                   700,000

Cash                      80,000



TNRB                     325,000

NRB                       325,000

Subject to IHT    130,000

IHT @ 40%           52,000

Example 2

As above for Mabel but this time death occurs on 6 April 2017

Death occurs after introduction of RNRB, estate passes to direct descendants so RNRB is available

House                   700,000

Cash                      80,000



RNRB                     200,000 i.e. 100,000 for 2017/18 x 2

TNRB                     325,000

NRB                       325,000

Subject to IHT               0

IHT                                    0

Example 3

As above for Mabel but this time death occurs on 6 April 2019.

She sold the marital home in June 2018 and purchased a granny flat for £250,000. The value of the flat at the time of her death is £270,000 and the cash held is £480,000.

Step 1 – establish % of RNRB available at time of downsize:

700,000/(125,000 x 2) = 2.8 x 100 = 280% – the maximum band available is restricted to 100%

Step 2 – establish % of RNRB available at time of death:

270,000/(150,000 x 2) = 0.90 x 100 = 90%

Step 3 – establish the % of RNRB lost as a result of downsizing:

100% – 90% = 10%

Step 4 – apply the downsizing % to the RNRB available at time of death:

150,000 x 2 = 300,000 x 10% = 30,000

Step 5 – work out amount of RNRB available

Value of granny flat at time of death       270,000

Plus: downsized amount                                30,000

Total RNRB available                                       300,000 this amount is equal to the cap on the maximum available of £300,000

The IHT calculation is:

Flat                         270,000

Cash                      480,000



RNRB                     300,000

TNRB                     325,000

NRB                       325,000

Subject to IHT               0

IHT                                    0

It should be noted that in cases where the main residence is downsized to a lower value property or sold so that the full RNRB is no longer available, the new property or interest in the property (or other assets) must be left to direct descendants on death otherwise the estate won’t qualify for the allowance. If no assets pass to direct descendants no additional RNRB allowance will be due.

Strangely, there is no requirement for the new property itself to be inherited by the direct descendants, it can be left to someone else and the estate will still qualify for the additional allowance, provided at least some assets pass to direct descendants. The additional allowance would then be restricted to the lower of either the amount of RNRB lost as a result of the downsizing or the value of the property or other assets being inherited by the direct descendants.