By Clare Finn

This time last year we looked at Inheritance tax and discussed plans for the Residential Nil Rate Band (RNRB), an additional allowance to add to an individual‘s current Nil Rate Band (NRB) of £325,000, which will be available from 6 April 2017.

Additional Allowance

The additional allowance starts at £100,000 in April and will rise by £25,0000 each April until reaching £175,000 in April 2020. The RNRB will then rise at the same rate as inflation. Increases will not be linked to increases in house prices and there is no adjustment for estates that include a property in a high or low price bracket across the country.

The portion of an estate’s value that exceeds the NRB and RNRB and passes to a non-exempt beneficiary (not a spouse, civil partner or charity) is taxed at 40%.

In essence, from April 2020, an individual can pass up to £500,000 free of inheritance tax when they die, and a married couple, or a couple in a civil partnership could pass £1,000,000 tax free.  As with the NRB, any unused RNRB when someone dies can be transferred to the deceased’s spouse or civil partner’s estate. This can also be done if the first person died before 6 April 2017, even though the RNRB wasn’t available at that time.

Hoops to Jump

The introduction of the RNRB cannot be viewed simply as an increase in the NRB. There are lots of hoops to jump through to show eligibility. A basic key fact is that there must be a residential property in the UK, owned or part owned by the deceased at death, that the deceased lived in, although not necessarily at the time of death. There are also complicated provisions which might preserve some benefit from the RNRB if a residential home had been sold shortly before death.

As with the NRB, the RNRB can be transferable in some circumstances, but there must be a residence in the estate of the survivor.  For example, if a husband dies, owning a house and leaves all his estate to his wife then, on her death, her estate can use his RNRB and NRB if she owns a house and it is worth at least as much as the RNRB.


There are complicated rules about ‘downsizing’. Where a family home is sold and a more modest home, more suited perhaps to the needs of an older single person, is purchased, or where no replacement home is bought, this could lead to loss of some of the RNRB.   The legislation therefore includes some downsizing provisions for people who sold their original home on or after 8 July 2015 and that home would have qualified for the RNRB.  The provisions are fairly complex and the facts of each person’s estate need to be considered carefully to maximise any potential inheritance tax savings.

Direct Descendants

Other than where the RNRB is transferable to a surviving spouse or civil partner on the first death, the house must pass to a ‘direct’ descendant on death.  The definition includes step children and grandchildren as well as children and the spouses of children and step children. A person’s step-child is limited to someone whose parent is, or was, the spouse or civil partner of the deceased and  the child of a cohabitee is not classified as a direct descendant in this situation.

‘Direct’ descendants don’t include nephews, nieces or siblings and other relatives who aren’t included in the list above.

If a home is left to beneficiaries who are a mixture of direct descendants and other relatives or individuals, the value of the home must be apportioned according to the share of the property the direct descendants inherit.

The Will does not have to mention the home specifically. It can be inherited as part of the ‘residue’ of the estate, what remains after all expenses, legacies and taxes have been paid.

If a grandparent, for example, makes a Will that includes a gift of a home or a share of residue to their grandchildren, on condition that they reach a particular age e.g. 25 years of age, the RNRB won’t be available if the grandchildren are under that age when the grandparent dies.

Estates of childless people, whether single, cohabiting, in a civil partnership or married will never benefit from the RNRB as they – have no ‘direct’ descendants to leave their estate to.

Couples living together who are not in a Civil Partnership or are not married often lose out on the tax breaks available to married couples or those in Civil Partnerships as the RNRB and NRB cannot be transferred for the benefit of the surviving cohabitant.


Some people have  complex Wills, which may contain Trusts. If the estate passes to a discretionary trust, where the trustees decide how the estate should be split there will be no entitlement to the RNRB because the estate does not pass to direct descendants. However where an estate, or a share of it passes to a disabled persons trust, eligibility to all or some of the RNRB is preserved.

Other Trust arrangements such as a Trust that allows a partner to continue living in a home after the death of the owner, might not affect entitlement to the RNRB but this will depend on many factors, such as whether the beneficiaries of the home on the death of the surviving partner are direct descendants.

A heavily marketed method of protecting the family home from payment of care home fees by placing the home in Trust before death, often called an Asset Protection Trust will also prevent entitlement to the RNRB. As the home will not be owned by the deceased at death, it cannot pass to direct descendants.

Estates exceeding £2 million

Where the value of an estate exceeds £2 million the RNRB is restricted. Those with estates valued at more than this may see little or no benefit, as the RNRB will be reduced by £1 for every £2 of value over £2 million, irrespective of the value of the property itself.  In the year 2017/18 no RNRB will be available if the estate exceeds £2.2 million.

Joint Tenants

Many couples hold their family home as joint tenants. On the first death this means the house passes to the surviving owner, and if the owners are married or in a Civil Partnership there is no inheritance tax to pay due to  the spouse exemption. The RNRB will not be used on the first death in this instance, and the unused allowance can be used when the survivor dies. But if the combined estate on the second death is greater than £2 million then both RNRBs could be lost or be of little value due to the tapering provision mentioned above.

Changing property ownership to tenants in common and making Wills that leave part of the home to direct descendants on the first death may help to preserve the RNRB, but this needs careful consideration and planning.

To conclude

For some married couples or civil partners it will be possible to pass up to £1 million to their families without any inheritance tax being paid. It is important for everyone to review their current Wills and any Trusts to make sure you and your family can benefit from the tax savings this legislation provides.

For more information on Inheritance Tax planning and your individual circumstances please do get in touch.

Leave a Reply

Please note: our response to comments will be for general information purposes only and does not constitute legal advice.

Your email address will not be published. Required fields are marked *

Share this post


askRL: Q&A series


Child Trust Fund Access

Court of Protection

Developing Vulnerability Series

Disabled and Vulnerable People

Estate Administration Series

Finance and Investment

Guest Blog Posts

Individuals and Families

Later Life

Life in our bubble

Planning for the Future

Power of Attorney

Real families, real stories

Renaissance Legal News

Transition Series

Wills and Trusts