When is a million pounds not a million pounds? The new residence nil rate band

Posted by Alison Craggs on
From 6 April 2017, there will be a new RNRB for an estate where a person leaves his/her home, or a share of it, to direct descendants, such as children or grandchildren.

The RNRB will be £100,000 in 2017/2018, £125,000 in 2018/19, £150,000 in 2019/20 and £175,000 in 2020/21. From 2021/22 it will increase in line with the Consumer Prices Index.

The RNRB will be in addition to the existing nil rate band (NRB), currently £325,000.

So where does the £1m figure come from?

For married couples or civil partners, any unused NRB and RNRB can be transferred to the surviving spouse's estate. So the surviving spouse's estate could benefit from a total RNRB of £350,000 (£175,000 x 2) in 2020/21 in addition to a total NRB of £650,000 (£325,000 x 2), so £1 million before IHT becomes payable. (References to spouse include civil partners.)

The home

For the RNRB to apply, the home must be included in your estate on death and you must have lived there at some stage during your life.

If you own more than one home, your executors can nominate which one should qualify for the RNRB. A property that you never lived in, such as a buy to let will not qualify.

The value of the home for RNRB purposes will be the open market value less any liabilities secured on it, such as a mortgage.

The RNRB can still apply if you leave a share of your home to direct descendants.

There are special provisions to cover the position where you downsize or no longer own a home at your death which we will cover in a future blog.  

The home does not have to be in the UK, but it does have to be within the scope of UK IHT.

If, for example, you chose to rent a property instead of buying and invested the money instead then the new rules will not benefit you.

Direct descendants

The definition of direct descendants includes children, stepchildren, foster children, adopted children and their own direct descendants.

As highlighted in our blog Autumn Statement 2016: Will our wishes come true for private clients? the RNRB rules do not benefit you if you do not have children or if you wish to leave your home to other relatives, such as your parents, siblings, or nephews and nieces. Despite our wishes, Mr Hammond did not mention widening the beneficiaries of the RNRB in his Autumn Statement.

Your Will

The home does not need to be specifically gifted in your Will – it can form part of the residue of your estate.

You should review your Will to check how direct descendants currently inherit. The following types of trust for children will qualify; an immediate post death interest trust, a disabled persons trust, a bare trust, a bereaved minors trust and an 18-25 trust.

Other trusts such as discretionary trusts will not qualify, but reading back could occur under a Deed of Variation.

If your Will has a condition that grandchildren must reach a certain age before they can inherit then the RNRB will not apply.

The executors of your estate do not have to transfer the home to your direct descendants, they can if they wish sell your home as part of the administration of your estate and pay the sale proceeds to them.

Transfer of an unused RNRB

The RNRB is transferrable between spouses and civil partners. This is the case even if the first spouse died before 6 April 2017 provided that the surviving spouse dies on or after 6 April 2017.  In this situation it does not seem to matter that the first spouse to die did not own a home, nor does it matters if s/he did own a home but left it to others, say her/his brother.

The RNRB is not transferrable between unmarried partners even if they lived together and jointly owned the home.

Tapering (see below) can affect the transferable spouse RNRB. If the estate of the first spouse to die exceeds £2 million then tapering will reduce the amount of the RNRB that can be transferred.

Tapering away

If a person's estate (assets less liabilities but ignoring exemptions such as spouse exemption, and reliefs such as agricultural and business property relief) exceeds £2 million the RNRB is reduced by £1 for every £2 above the threshold.

So, for example, Ethel a divorcee dies in 2020/21 with an estate worth £2.3 million, including a home worth £200,000. The RNRB in 2020/21 is £175,000. Her estate exceeds the taper threshold of £2 million by £300,000, so the RNRB is tapered by £1 for each £2 that it exceeds the taper threshold, so the RNRB is reduced by £150,000, meaning that only £25,000 of RNRB is available. If Ethel's estate was £2.35 million or more, the RNRB would be tapered away completely.


Had the IHT threshold increased to £1 million across the board it would have been simple, but that is not the case. In my next blog I will look at how the RNRB can apply where you downsize or no longer own a property at your death.

I hope the above has helped to put some meat on the bones in what is a complex area of law. If you would like further advice please contact a member of Blake Morgan's Succession and Tax Team.

About the Author

Photograph of Alison Craggs

Alison advises clients on the best structure for their Wills and prepares powers of attorney and administers estates. 

Alison Craggs
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