Inheritance Tax (IHT) is charged on estates above a tax-free threshold, but many people don't realise there's a second, additional allowance available specifically when a home is passed down to direct descendants. This is the residence nil-rate band (RNRB), and it can significantly increase how much a family can leave before IHT applies — but only if the right conditions are met.
The basic idea
Everyone has a standard nil-rate band — a fixed amount of their estate that's IHT-free regardless of who inherits it. The RNRB sits on top of that, but only applies where a qualifying residence is left to children, grandchildren, step-children, adopted children, or foster children (and their spouses or civil partners, in some circumstances). It does not apply if the home passes to a sibling, niece, nephew, friend, or a trust that doesn't qualify.
How much extra it's worth
The RNRB is a separate allowance from the standard nil-rate band, and like the standard band, any unused portion can be transferred between spouses or civil partners on the first death, meaning a surviving spouse's estate can potentially claim both a doubled standard nil-rate band and a doubled RNRB. Combined, a couple who plan carefully can shelter a substantial estate value from IHT before any tax is due — check GOV.UK for the exact current bands, as the RNRB figure has been frozen for several tax years running.
Who qualifies
- The property must have been the deceased's home at some point — it doesn't need to be their home at death, provided it was downsized from or sold under specific "downsizing addition" rules
- It must pass to direct descendants, not more distant relatives
- Only one residential property can qualify per estate (if there are several, the executors nominate which one)
The taper trap for larger estates
The RNRB is not unlimited for wealthier estates. Once the total estate value exceeds a set threshold (historically £2 million), the RNRB is gradually withdrawn — tapered away — at a rate of £1 for every £2 over that threshold. For a large enough estate, the RNRB can be reduced to nothing entirely, even though the home itself is being left to children exactly as intended.
| Estate value | Effect on RNRB |
|---|---|
| Below the taper threshold | Full RNRB available (subject to the property being left to descendants) |
| Above the taper threshold | RNRB reduced by £1 for every £2 of excess |
| Well above the taper threshold | RNRB reduced to zero |
A common misconception
Many people assume that because their home is worth less than the RNRB, they automatically get the full allowance. In fact, the RNRB can never exceed the value of the qualifying home itself — if the property is worth less than the maximum band, the relief is capped at the property's actual value, with the shortfall lost (unless a spouse's transferable RNRB can top it up).
What to do next
If your estate includes a family home you intend to leave to children or grandchildren, check whether your will actually directs the property to them by name or class, since leaving it into a discretionary trust can sometimes fail to qualify for the RNRB without careful drafting. For larger estates approaching the taper threshold, gifting strategies or trust planning during your lifetime may help preserve the allowance — this is a good area to get advice from a solicitor or IHT specialist rather than relying on a template will.