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Inheritance Tax Update – The Residence Nil Rate Band

6th October 2016 by Lee Goodwin

Categories: What's New?
Tags: , ,

From 6 April 2017 additional inheritance tax relief is being made available in the form of the residence nil rate band (RNRB).  The Personal Representatives of anybody who dies on or after this date will be able to claim this relief in addition to the existing inheritance tax nil rate band (NRB) (currently £325,000) provided that certain qualifying conditions are met.

The RNRB will initially provide additional relief of £100,000 during the 2017/18 tax year, increasing by £25,000 each year until 2020/21 when it will reach a ceiling of £175,000.  As with the NRB, any unused RNRB can be transferred to a surviving spouse or civil partner, with the effect that the maximum combined inheritance tax threshold for such couples will increase to £1m by 6 April 2020.

In essence, the RNRB will be available where the deceased leaves a “qualifying residential interest” to a “direct lineal descendant” of theirs following their death, either by their Will or on intestacy.

A “qualifying residential interest” will include any interest owned by the deceased in any property that has been used as a residence of theirs at some point during their lifetime.  This can include property that is no longer owned by the deceased at the time of their death.  Any property that has been held on trust for the benefit of the deceased will also qualify where the deceased is treated as owning the trust property for inheritance tax purposes (i.e. where the deceased was granted a right to occupy a property during their lifetime under the terms of a trust).  Where the deceased owned more than one qualifying residential interest the Personal Representatives can elect which one to use when claiming the RNRB.

“Direct lineal descendants” will not just be restricted to the issue or direct descendants of the deceased (i.e. children and grandchildren etc.) but will also include adopted children, step-children, foster children and also the descendants of all of these.  Gifts of a qualifying residential interest to spouses, widows and widowers of a direct lineal descendant will also qualify provided that the widow or widower has not re-married.

To qualify for the RNRB a direct lineal descendant must inherit the qualifying residential interest absolutely (i.e. outright), either by Will or under the intestacy rules.  A post death variation redirecting property to a direct lineal descendant will also qualify, as will property left in limited types of trusts where the property is being held for the benefit of a direct lineal descendant (including the popular “life interest” trust).

However, many types of trusts will not qualify for the RNRB, including discretionary settlements – even where all of the potential beneficiaries are direct lineal descendants of the deceased.  Trustees of such settlements will, however, have the option of retrospectively securing the RNRB for the deceased’s estate by making an appointment out of the settlement to a direct lineal descendant within two years of the deceased’s death.

The RNRB will be restricted where the net value of the estate is more than £2 million (“the taper threshold”). It is withdrawn by £1 for every £2 that the net value of the estate exceeds the taper threshold.  As a result in 2017/18, an estate worth over £2.2m will not benefit from the RNRB at all.  When the relief reaches £175,000 in 2020/21, this ceiling will increase to £2.35m.

For married couples or civil partners any unused RNRB from the estate of the first spouse or civil partner to die can be transferred to the estate of the surviving spouse or civil partner. The transfer works in the same way as the existing NRB (and will also have to be claimed in a similar fashion by the Personal Representatives of the surviving spouse or civil partner), in that it is the proportion of the unused RNRB that can be transferred.  Where the first spouse or civil partner died before the 6 April 2017 they will not have used their RNRB (as the RNRB was not available prior to this date) and it will therefore be available to transfer to a surviving spouse or civil partner who dies after this date, effectively doubling the RNRB available to the estate of the surviving spouse or civil partner.

The RNRB will be preserved where the deceased has “downsized”, or disposed of a qualifying residential interest completely, on or after 8 July 2015, provided that the assets that replace it (i.e. the new lower valued property, or cash and savings etc, or a mixture of these) are of an equivalent value and are inherited by a direct lineal descendant of the deceased.  Consequently, anybody downsizing or disposing of a property should now keep appropriate records in relation to the sale or transfer to enable their Personal Representatives to claim any RNRB which may otherwise be lost.


The introduction of the RNRB is generally good news for taxpayers and goes some way to fulfilling the Conservative Party’s pre-2010 election pledge to increase the inheritance tax threshold to £1m for married couples.  However, its scope is likely to be restricted by the fact that it will only be available to those who leave a property to direct lineal descendants, and also because of the application of the taper threshold for estates over £2m.

Nevertheless, care must now be taken by those individuals potentially eligible to take advantage of the RNRB.  A careful review of the organisation of their estates and the provisions in their Wills would be sensible – especially where a property is to be left in trust – so as to ensure that the property passes to their direct lineal descendants in such a manner that it qualifies for the RNRB.


Lee Goodwin

Associate — Private Client

Direct dial: 01202 377856


  • “I was very impressed by the manner in which Lee and his secretary dealt with me during a difficult period following the loss of my mother.”

    Mrs Sandra Budd

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Lee is an Associate Solicitor in our Private Client department and advises clients in relation to Will drafting, Administration of Estates, Trusts and Estate Planning, and Powers of Attorney.

Lee is a Full Member of The Society of Trust and Estate Practitioners (STEP) having successfully completed their Diploma in Trusts and Estates (England and Wales).

Outside of work Lee’s interests include cricket, kayaking, natural history and photography.

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