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The Devil in the Detail RNRB

22 March 2018

The residence nil rate band has been available for a year - so how is it working and which clients are benefiting?

Bird's eye view of a motorway junction



It may feel as if people have been talking about the residence nil-rate band for some years but, in reality, it has only started to be phased in over the past year. Here, Andy Woollon looks at how it works and who will benefit

The residence nil-rate band (R-NRB) has been available on an individual’s death since 6 April 2017 and takes precedence over the standard nil-rate band (S-NRB). It is, however, only available where a ‘qualifying residential interest’ in a property is ‘closely inherited’. Or, in simple terms, you leave the family home to your kids.
The R-NRB is being phased in as follows:

Tax Year  R-NRB per person 
 2017/18  £100,000
 2018/19  £125,000
 2019/20  £150,000
 2020/21  £175,000
 2021 onwards  Increases by CPI (as will the S-NRB)



This is an interest in a residential property that has, at some point during the deceased’s period of ownership, been occupied by them as a main residence, including overseas properties subject to UK inheritance tax (IHT), and is included in their estate.

Buy-to-let properties cannot, therefore, qualify unless previously occupied by the deceased and subsequently let to tenants. Where there is more than one property, the personal representatives can nominate which one should be treated as the qualifying residential interest.

The value of the property for these purposes is net of any liabilities secured on it, for example, a mortgage, loan or equity release, and the basis of ownership, joint tenants (50/50) or tenants-in-common (x/y), both of which could reduce the value that would qualify against the R-NRB.

This is subject to a maximum of the R-NRB available, with any excess value using up the S-NRB, and any shortfall either being lost or transferable to a surviving spouse or civil partner.




This means that, on the death of the person who owns it – or is deemed to own it for IHT purposes – it passes to any one or more of the following direct or lineal descendants, where it becomes part of their estate:


  • a child or grandchild of the deceased;
  • a spouse or civil partner of a child or grandchild (including adopted, step, fostered or legal guardian for under 18);
  • a widow/er or surviving civil partner of a child or grandchild (provided they have not remarried at the date of the death of the property owner).


So, if the person does not have children, or the property is left to an unmarried partner, siblings or nieces/nephews, R-NRB will not apply.

Property settled in trust on death for beneficiaries falling within one of the above definitions will also be treated as having been closely inherited, where the property is either held absolutely for the beneficiaries – in other words, a bare trust, a bereaved minors’ trust or an 18-25 trust – or for qualifying interest in possession trusts, where the beneficiaries have an immediate post-death interest or a disabled person’s interest.

However, property left to a discretionary trust will not be deemed ‘closely inherited’ even if all the beneficiaries of the trust fall within the above definitions as there is no absolute right to the property. This can have implications for wills and discretionary will trusts. While R-NRB would apply if a deed of variation was effected within two years of death, to make an absolute assignment of the property to the children, this assumes that this ‘two year get out of IHT’ option is still available.




Just like the S-NRB, any unused R-NRB on the first death of a married couple or civil partner has been transferrable to a surviving spouse or civil partner and used on their death since 6 April 2017. Therefore, existing widows/ers and surviving civil partners can claim transferable R-NRB.

The amount carried forward is calculated as a percentage of the unused R-NRB on first death and added to the R-NRB amount available on the second death. Transferable R-NRB applies even if on first death they did not own a property. For first deaths before 6 April 2017, regardless of what actually happened, the unused R-NRB at the time of first death is deemed to be £100,000 and therefore the transferable R-NRB will always be 100%. Where the net value of the estate on first and second death exceeded £2 million however, tapering may apply (see below) and reduce the value down to zero.

It is estimated there are three million unmarried couples in the UK and, as the transferability rules do not apply to them, they will need advice to benefit from two R-NRBs. One approach maybe to split the property on a tenants-in-common basis and amend their wills so that, on first and second death, they each leave half the property to the kids, using their own R-NRB.

Of course, while the surviving partner has the right to live in their share of the house, and cannot be forced to sell – bringing possible long-term care assessment benefits – what happens if they fall out with the kids who own the other share? Clearly legal advice needs to be considered. Other approaches may be to cover any IHT liability with a joint-life, second-death, whole-of-life protection policy written in trust... or to get married!




If the net value of the deceased’s estate (not property value) exceeds the £2 million taper threshold on either the first and/or second death, the R-NRB will be reduced by £1 for every £2 in excess. This means that, while the wealthier will be no worse off, they will not benefit from it.


Tax Year Net estate value where R-NRB is fully lost 

 On first death  On second death
 2018/19  £2.25m  £2.5m
 2019/20  £2.3m  £2.6m
 2020/21  £2.35m  £2.7m

Of course, the devil is again in the detail as the ‘net estate value’ includes everything in the deceased’s estate immediately before death, less any liabilities, but you cannot deduct any exemptions or reliefs – so S-NRB, spousal exemption, charitable/political gifts and BPR/APR assets are not deducted. However, any lifetime gifts made at any time within the seven years immediately prior to death are not taken into account.


Those who have downsized or disposed of their property on or after 8 July 2015 and before their death – for example, on retirement or moving into care – may in certain circumstances receive a ‘downsizing addition’ for any lost R-NRB in respect of other assets that are closely inherited.
Through a very complicated calculation of the lost R-NRB, the downsizing addition is shown as a percentage of the actual R-NRB at date of death and can be used against other assets (such as cash and investments) that are closely inherited. The official five-step process can be simplified and summarised as follows. 

The lost R-NRB is the difference between:

* The value of the property divided by the notional R-NRB (including any transferable R-NRB), that would have been available at the date of disposal of the property = x% (maximum 100%)


* The value of the (downsized, if applicable) property divided by the actual R-NRB (including any transferable R-NRB) that is available at the date of death = x% (maximum 100%). If no property, this will be 0%.

The resulting percentage is then multiplied by the actual R-NRB available at the date of death, to give the downsizing addition. However, depending upon the actual value of any downsized property at date of death, whether it is gifted out of their estate (into certain trusts) and whether transferable R-NRB applies, the result can often cause anomalies in favour of HMRC.
It is also not yet clear exactly what evidence and supporting information needs to be supplied by the deceased’s personal representatives to claim downsizing addition, so full record-keeping is essential.



 Winners and losers  R-NRB from 2020/21   Overall NRB from 2020/21 
 Married couples, civil partners, widow/ers and surviving civil    Up to £350,000 if fully transferrable  Up to £1m, if fully transferrable
 Unmarried couples  Up to £175,000 each, but not transferrable   Up to £500,000 each, but not transferrable
 Singles  Up to £175,000 only  Up to £500,000 only
 Net estates above £2m  Tapered down to nil  Up to £325,000 each, or £650,000 if transferrable
 Not left to/no direct descendants  Nil  As above
 Left to a discretionary trust  Nil  As above

The R-NRB rules are complicated, but where it is available it could save up to £140,000 IHT. With clients potentially misled by the media and misunderstanding how it works or who benefits from it, knowledge of how the rules operate is essential if you are doing estate planning.

Andy Woollon is a wealth specialist at Zurich UK.