Check if a home is eligible for extra tax-free residence allowance if it is left to children, grandchildren or other direct descendants.
If someone dies on or after 6 April 2017 and they owned their own home or share of one, their estate may be entitled to a higher threshold. This is the residence nil rate band (RNRB). The extra amount for 2021 to 2026 is up to £175,000.
If the person who died did not use their residence nil rate band, you can transfer the unused threshold to a surviving spouse or civil partner.
Find out how to qualify for residence nil rate band
To qualify, the person who died must have left their home, or a share of it, to their direct descendants.
A person does not have to leave the whole of the home to direct descendants. If they only inherit a share of the home, you calculate the available residence nil rate band on the basis of the value of that share.
The estate may also qualify if the person downsized to a lower value property, or sold or gave away their home on or after 8 July 2015.
A woman dies in tax year 2020 to 2021. Her estate includes a home worth £500,000.
In her will she leaves half of the property to her step-son and half to her nephew.
You work out the available residence nil rate band based on how much the property left to the step-son was worth (£250,000). But, the actual residence allowance for the estate is restricted to £175,000. This is the lower of the maximum available allowance for tax year 2020 to 2021 (£175,000) and value of the half share of the home (£250,000).
It does not matter how the step-son inherits the home. The home could be left to the step-son as a specific legacy in the will, or it could be included in what’s left of the estate (the residue) after specific legacies have been taken into account.
Homes that qualify
Only one home will qualify for the available residence nil rate band. If the person who died owned and lived in more than one home, the executor can choose which one to use.
The person that died must have owned and lived in the property at some time. A property that they owned but never lived in, such as a buy-to-let, will not qualify for this allowance.
You may be able to claim residence nil rate band by claiming a downsizing addition if the person who died either:
- did not own a home because they sold or gave it away on or after 8 July 2015
- downsized to a less valuable home that’s below the maximum threshold on or after 8 July 2015
If the home, or the share of the home, was held in a trust before the person died or is transferred to a trust when they die, you may be able to claim the residence nil rate band depending on the type of trust. Find out about dealing with a trust when someone dies.
The home does not have to be in the UK but it does have to be within the scope of Inheritance Tax and it must be included in a person’s estate. This may depend on their domicile (where they’ve made their permanent home) and where the home is.
People that have made their permanent home in the UK (for example, they are domiciled in the UK) are subject to Inheritance Tax on their worldwide assets so it does not matter where the home is. People who are not domiciled in the UK are only subject to Inheritance Tax on their assets in the UK, so the home must be in the UK to be within the scope of Inheritance Tax and within their estate when they die. In these cases, the home will only qualify for the residence nil rate band if it’s in the UK.
Work out the value of the home
To work out the value of the home, use the open market value of the home, less any debts such as a mortgage.
If the person who died only owned a share of the home, only include what their share was worth.
Work out the available residence nil rate band
The amount will be the lower of the:
- value of the home, or share inherited by the direct descendants
- maximum residence nil rate band available when the person died
The amount the estate is entitled to is reduced or tapered away for estates worth more than £2 million by £1 for every £2 over £2 million.
How to use the residence nil rate band
You subtract the allowance from the value of the whole estate, not just the value of the home.
The residence nil rate band includes any unused residence nil rate band transferred from a husband, wife or civil partner.