Guidance

Work out and apply the residence nil rate band for Inheritance Tax

How to work out and apply the residence nil rate band (RNRB) for Inheritance Tax in different circumstances.

Overview

If someone dies and their estate is worth more than the basic Inheritance Tax threshold, their estate may qualify for the residence nil rate band (RNRB) before any Inheritance Tax is due.

RNRB thresholds and interest rates

Find out the RNRB thresholds from 2017 to 2021.

The threshold increases every year in line with inflation, based on the Consumer Price Index.

How to work out and apply the RNRB

Use this calculator to work out:

  • how much RNRB the estate may get
  • the RNRB if a person downsized or sold their home
  • any unused RNRB for transfer to the estate

To use this calculator, you’ll need to have:

  • an IHT400 account form with the value of what’s in the estate already worked out
  • an IHT435 form if you have already started filling one in
  • a completed IHT436 form if you are transferring any unused additional threshold from another estate

Start now

Apply the RNRB

Add the RNRB to the basic Inheritance Tax threshold if the person and their estate meet the qualifying conditions.

This higher threshold does not mean that the home is exempt from Inheritance Tax but that can be the result in some cases.

Additional RNRB may also be available from a late husband, wife or civil partner’s estate.

  1. Add any transferred RNRB that may be available from a late husband, wife or civil partner’s estate to the amount of the RNRB due for an estate to get a combined RNRB.
  2. Take off the combined RNRB from the value of the estate.
  3. Take off the basic Inheritance Tax threshold (and any transferred basic threshold) from the rest of the value of the estate.

Usually, the order you apply the RNRB and basic Inheritance Tax threshold will make no difference. However, in some cases it will affect the amount of any unused additional or basic Inheritance Tax threshold available to transfer to a spouse or civil partner’s estate.

Example

A man dies in the tax year 2020 to 2021 and leaves to his children:

  • a home worth £300,000
  • other assets worth £190,000

The maximum available RNRB in the tax year 2020 to 2021 is £175,000.

RNRB for the estate £175,000 (the lower of £300,000 and £175,000)
basic Inheritance Tax threshold £325,000
estate value £490,000
less RNRB - £175,000
remaining value £315,000
less basic Inheritance Tax threshold - £315,000
amount that Inheritance Tax is due on £0

The full RNRB has been used up, but the unused £10,000 out of the basic Inheritance Tax threshold of £325,000 would be available to transfer to the man’s wife.

What happens if the value of the home is less than the maximum RNRB

The home inherited by direct descendants does not have to be worth more than the basic or transferred basic threshold, to get the RNRB.

You apply the RNRB to the whole taxable estate, not just to the value of the home, so the whole estate shares the benefit of the RNRB.

If the home is worth less than the maximum available RNRB, you cannot set the unused amount against the other assets in the estate. But, the unused amount would be available to transfer to their wife’s, husband’s or civil partner’s estate when they die and leave a home to their direct descendants.

Example

A woman dies in the tax year 2020 to 2021 leaving:

  • a flat worth £100,000, and other assets of £400,000 to her son
  • the rest of her assets of £500,000 to her husband, which are exempt from Inheritance Tax

The maximum available RNRB in the tax year 2020 to 2021 is £175,000

RNRB for the estate £100,000 (the lower of £100,000 and £175,000)
basic Inheritance Tax threshold £325,000
estate value £500,000 (the £500,000 left to the husband is exempt)
less RNRB - £100,000
remaining value £400,000
less basic Inheritance Tax threshold - £325,000
amount that Inheritance Tax is due on £75,000

The maximum possible RNRB for this estate was £175,000, but the flat left to the son is only worth £100,000. So only £100,000 of the RNRB applies.

The remaining RNRB of £75,000 is available to transfer to the husband’s estate. There’s no unused basic Inheritance Tax threshold to transfer.

Gifts and lifetime transfers

Unlike the basic Inheritance Tax threshold, the RNRB does not apply to gifts and lifetime transfers, such as:

  • transfers into trusts
  • the value of any gifts made in the 7 years before the person that died gave them away (which are then taxable)

Example

A woman dies in tax year 2020 to 2021 and leaves to her daughter:

  • a house worth £200,000
  • other assets worth £250,000

During the 7 years before she died she gave assets worth £100,000 to her nephew.

The maximum available RNRB in tax year 2020 to 2021 is £175,000.

RNRB for the estate £175,000 (the lower of £200,000 and £175,000)
basic Inheritance Tax threshold £325,000

Set the basic Inheritance Tax threshold of £325,000 against the value of the lifetime gifts of £100,000:

taxable lifetime gifts add up to £100,000
less basic Inheritance Tax threshold - £100,000
amount that Inheritance Tax is due on £0

This leaves £225,000 of the basic Inheritance Tax threshold to use against the estate.

estate value £450,000
less RNRB - £175,000
remaining value £275,000
less remaining basic Inheritance Tax threshold - £225,000
amount that Inheritance Tax is due on £50,000

The basic Inheritance Tax threshold applies to any lifetime transfers and any gifts made in the 7 years before someone dies. But the RNRB does not. So the basic Inheritance Tax threshold could be completely used up by those transfers and gifts. But any RNRB would still be available to reduce the tax on the estate.

Example

A man dies in tax year 2020 to 2021 leaving to his granddaughter:

  • a house worth £500,000
  • other assets worth £250,000

He made gifts of £700,000 to his other grandchildren and nephew during the 7 years before he died.

The maximum available RNRB in 2020 to 2021 is £175,000.

RNRB for the estate £175,000 (the lower of £500,000 and £175,000)
basic Inheritance Tax threshold £325,000

Take away the basic Inheritance Tax threshold of £325,000 from the lifetime gifts of £700,000:

lifetime gifts £700,000
less basic Inheritance Tax threshold - £325,000
value of gifts that Inheritance Tax is due on £375,000

The lifetime gifts use up the basic Inheritance Tax threshold. So you pay Inheritance Tax on £375,000 worth of the gifts.

But the RNRB is still available to take off from the estate value:

estate value £750,000
less RNRB - £175,000
estate value that Inheritance Tax is due on £575,000

For married couples and civil partners, you look at the position for each person’s estate separately when each dies. This would include each person’s share of the home if it’s owned jointly.

Who is a direct descendent

For RNRB purposes the direct descendant is:

  • a child, grandchild or other lineal descendant
  • a husband, wife or civil partner of a lineal descendant (including their widow, widower or surviving civil partner)

This also includes:

  • a child who is, or was at any time, their step-child
  • their adopted child
  • a child fostered at any time by them
  • a child where they’re appointed as a guardian or special guardian when the child is under 18

The person who inherits the home does not have to be under 18. A person’s step-child is only someone whose parent is, or was, the husband, wife or civil partner of that person.

Direct descendants do not include nephews, nieces, siblings and other relatives who are not included in the list above.

One or more direct descendants of the person that’s died can inherit a home, or a share of it.

For a home left to people who are a mixture of direct descendants, other relatives or other people, you must share the value of the home in proportion to the share of the property each direct descendant inherits.

Example

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 RNRB based on the value of the property left to the step-son (£250,000). But the actual RNRB for the estate is restricted to £175,000. This is the lower of the maximum RNRB for tax year 2020 to 2021 (£175,000) and value of the half share of the home (£250,000).

How the direct descendants inherit the home

For homes that qualify for the RNRB, there are rules about how the direct descendants inherit a home.

The home must be left to them:

  • in the will of the person that’s died
  • under the rules of intestacy
  • by some other legal means

The home does not have to be specifically mentioned in the person’s will. It can be inherited as part of what’s left of the estate (the residue) after taking specific legacies into account.

The residue of the estate is what’s left after payment of:

  • debts such as mortgages and loans
  • funeral expenses
  • executor’s fees
  • taxes
  • other expenses from administering the estate
  • any specific gifts or legacies in the will

Where the home forms part of the residue and the residue has passed on to a number of different people, HMRC treat each of them as inheriting a proportion of the home.

For the RNRB, inheriting the home only counts if the direct descendants become entitled to the home when the person dies.

For example, if the will has a condition that the grandchildren have to reach a certain age before they can inherit the home, the property is held in a trust, so the RNRB will not apply. This is because the grandchildren do not inherit the home at the time that their grandparent dies.

If the home is held in a trust before a person dies and it stays in trust when they die, the home will only qualify for the RNRB if it becomes part of the direct descendant’s estate after the person dies.

The actual home does not have to end up in the hands of the direct descendants. An estate could still be eligible for the RNRB if the estate’s personal representative sells the home as part of the administration of the estate and passes the sale proceeds to the direct descendants.

In the same way, once the direct descendants have inherited the home, there are no restrictions on what they can do with it. An estate will still qualify for the RNRB, even if the direct descendants decide to sell the home after they’ve inherited it.

Example

A woman died in tax year 2019 to 2020 leaving her house worth £500,000 to her 3 grandchildren as part of the residue of her estate. The maximum available RNRB in tax year 2019 to 2020 is £150,000.

The 3 grandchildren do not want to keep the property jointly. The estate’s personal representative sells the property and distributes the sale proceeds between the 3 grandchildren.

As the home passes to the grandchildren under the terms of Jocelyn’s will, the 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 will by a deed of variation. The deed of variation replaces the terms of a will, so the outcome of the deed is considered, rather than the wording of the will.

What happens if the home is in a trust

A home, or a share of one could be either:

  • held in a trust before a person dies
  • transferred to a trust when they die

The availability of the RNRB will depend on the type of trust.

This is because the type of trust will affect whether HMRC treats:

  • the home as part of a person’s estate for Inheritance Tax purposes
  • that person’s direct descendants as inheriting the home

How RNRB tapers for estates worth more than £2 million

The RNRB will gradually reduce, or taper away, for an estate worth more than £2 million, even if a home is left to direct descendants.

The RNRB will reduce by £1 for every £2 that the estate is worth more than the £2 million taper threshold.

Example

A man dies in the tax year 2018 to 2019 leaving an estate worth £2,100,000 to his children. This includes a home worth £450,000.

The maximum RNRB in the tax year 2018 to 2019 is £125,000.

The estate is worth more than the taper threshold of £2 million by £100,000.

The RNRB tapers away by £1 for each £2 that the estate is more than the taper threshold. So the RNRB reduces by £50,000:

RNRB £125,000 (lower of £450,000 and £125,000)
less amount of taper - £50,000
net RNRB for the estate £75,000

If his estate was worth £2,250,000 or more, the RNRB of £125,000 would taper away completely.

The value of the estate for taper purposes is the total of all the assets in the estate less any debts or liabilities. When you work out how much the estate is worth, do not take off any:

  • exemptions such as spouse exemption
  • reliefs such as agricultural or business property relief

Ignore assets that are specifically excluded from Inheritance Tax.

How tapering can reduce the RNRB available for transfer

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

You calculate the amount of transferred RNRB that the survivor’s estate can claim using the percentage of RNRB that was not used when the first of the couple died.

If the estate of the first of the couple to die is worth more than £2 million, tapering will reduce the amount of the unused RNRB in that estate. This in turn reduces the amount of RNRB that is transferable to the surviving husband, wife or civil partner’s estate.

Example

A man dies in the tax year 2018 to 2019 leaving an estate worth £2,100,000.

He leaves:

  • a £450,000 home to his wife
  • everything else to his children

The maximum RNRB in the tax year 2018 to 2019 is £125,000. But as his children do not inherit the home, his estate cannot use any RNRB.

Without the effect of tapering, he would have unused RNRB of £125,000.

But his estate is worth more than the taper threshold of £2 million by £100,000.

The RNRB available to his estate tapers by £1 for each £2 over the taper threshold. So the RNRB reduces by £50,000.

If he had left his home to his children, the RNRB would have been £75,000 (£125,000 less £50,000). So the amount of his unused RNRB is £75,000.

The percentage of unused RNRB in his estate is:

unused RNRB £75,000
divided by maximum RNRB in the tax year 2018 to 2019 ÷ £125,000
percentage of unused RNRB 60%

The man’s wife dies in tax year 2020 to 2021, when the maximum RNRB is £175,000.

She has an estate worth £1.8 million, including her home worth £500,000. She leaves all of this to her children.

The amount of RNRB available to transfer to her estate is:

maximum RNRB in tax year 2020 to 2021 £175,000
multiplied by the unused percentage x 60%
RNRB to transfer £105,000

So her estate qualifies for £175,000 RNRB based on her estate, plus a further £105,000 transferred RNRB from her husband’s estate, to give a total RNRB of £280,000.

Further information

HMRC cannot:

  • give tax planning advice
  • comment on what someone should do to take advantage of the RNRB
  • explain what someone’s entitlement to the RNRB or tax position will be in the future

In some less straightforward situations you may want to get professional advice about:

  • how to work out the RNRB
  • the effect of the RNRB on the Inheritance Tax liability
  • what action you need to take to make sure that an estate qualifies for the RNRB
Published 8 November 2016
Last updated 5 September 2019 + show all updates
  1. The additional threshold has been renamed residence nil rate band (RNRB).

  2. You can now use the additional threshold calculator to work out how much additional threshold an estate may be entitled to.

  3. First published.