The Residence Nil-Rate Band: An Extra £175,000 for Leaving Your Home to Children

Beyond the standard £325,000 nil-rate band, homeowners get access to a second, separate allowance specifically for passing on their main home - but it comes with conditions and a taper that catch out more estates than people expect.

The basic allowance

The residence nil-rate band (RNRB), introduced in 2017, provides an additional £175,000 allowance when your main residence is left to direct descendants - children, grandchildren, step-children, or adopted children (but not, for example, nieces, nephews, or siblings). Combined with the standard £325,000 nil-rate band, this gives an individual up to £500,000 tax-free, and a married couple up to £1 million when both allowances transfer to a surviving spouse.

Why ‘direct descendants’ matters so much

The RNRB is not available if a home is left to anyone other than a direct descendant - leaving your house to a sibling, a friend, or even a niece or nephew doesn’t qualify, regardless of how close the relationship. This is a common and costly oversight in older wills that haven’t been reviewed since the RNRB was introduced.

The taper for larger estates

The RNRB reduces by £1 for every £2 that the total estate exceeds £2 million, disappearing entirely once the estate reaches £2.35 million for an individual (or £2.7 million for a couple, before other allowances). This taper threshold is also frozen until at least April 2031, meaning more estates will be caught by it over time as asset values rise.

What happens if you downsize

If you sold or downsized your home after 8 July 2015 (when the RNRB was announced) and no longer own a qualifying residence at death, special ‘downsizing addition’ rules can still preserve some or all of the RNRB you would have been entitled to, provided the proceeds or an equivalent value pass to direct descendants - this is a genuinely complex area worth getting professional advice on, since the rules require careful calculation.

Unused RNRB also transfers between spouses

Like the standard nil-rate band, any unused RNRB transfers to a surviving spouse or civil partner - meaning even someone who didn’t own a qualifying home at their own death can still pass on an inherited RNRB entitlement, as long as their spouse later leaves a home to direct descendants.

A worked example

A widow with a £900,000 estate, including her £400,000 home left to her two children, and having inherited her late husband’s unused nil-rate band and RNRB, could have up to £1 million in combined allowances (£650,000 combined NRB plus £350,000 combined RNRB) - meaning her entire estate passes free of Inheritance Tax, provided the home genuinely passes to her children.

Why reviewing an older will matters

Wills written before 2017, or that use older trust structures common in estate planning at the time, sometimes inadvertently prevent the RNRB from applying - for example, leaving the home into a discretionary trust rather than directly to children can, depending on the trust’s specific terms, disqualify the RNRB entirely. Anyone with a will written more than a few years ago should have it reviewed specifically against the current RNRB rules.

The bottom line

The residence nil-rate band can add a genuinely significant £175,000 (or £350,000 for a couple) to how much passes tax-free, but only if a qualifying home goes to direct descendants and the estate stays under the £2 million taper threshold - checking both conditions against your specific will is essential rather than assuming the allowance automatically applies.