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13th December 2021

Flora Nelmes says that clients should review their existing wills and consider IHT opportunities with the RNRB to remain fixed until April 2026 in Accountancy Daily

Flora Nelmes says that clients should review their existing wills and consider IHT opportunities with the RNRB to remain fixed until April 2026 in Accountancy Daily

This article was originally published in Accountancy Daily and can be accessed here

The Residence Nil Rate Band

With the residence nil rate band (‘RNRB’) to remain fixed until April 2026, now is the time for clients to review their existing wills and consider inheritance tax (‘IHT’) opportunities to take advantage of this valuable exemption.

  1. What is the RNRB?

The RNRB was introduced in 2017 with the aim of protecting the family home from IHT.

The RNRB, currently set at a maximum of £175,000 per person, is an additional IHT free amount over and above the standard IHT nil rate band (‘NRB’), which is currently set at £325,000 and also frozen until April 2026.

The RNRB, together with the standard NRB, gives each individual a potential IHT free allowance of £500,000 (£325,000 + £175,000), or £1 million for a married couple or civil partners. The IHT savings can therefore be considerable.

However, the RNRB is reduced by £1 for every £2 of excess if the overall value of deceased’s net estate exceeds £2 million (otherwise known as the ‘taper threshold’). Where the estate is worth £2,250,000 or more, the RNRB is lost completely. For IHT planning purposes, it is important to note that whilst this value excludes lifetime gifts (even if those gifts were made within the last seven years), it does include business and agricultural property.

  1. How does it work?

To qualify for the RNRB, the deceased must have held a qualifying residential interest (‘QRI’) at death, or the ‘downsizing provisions’ must apply.

A QRI is broadly an interest in a residential property that has been the deceased’s residence at some point.

A QRI does not have to be the deceased’s main residence and could include a variety of less conventional homes if they have been used as their residence. Whilst buy-to-let properties cannot qualify as QRIs, a property that was once lived in by the deceased, but has been later let to tenants, can be. Holiday homes whether in the UK or overseas could theoretically qualify provided they are within the scope for IHT and have been used as the deceased’s residence.

Where the deceased owned more than one QRI, the deceased’s personal representatives must nominate which property will utilise the RNRB as it cannot be divided across two properties.

To claim the RNRB, the QRI must be ‘closely inherited’ whereby, on the deceased’s death, it passes to any one or more of:

  • the deceased’s children (which could include adopted, fostered or stepchildren) or grandchildren;
  • the spouses or civil partners of those children or grandchildren; or
  • the widows, widowers, surviving civil partners of those children or grandchildren if not remarried at the date of the death of the property owner.
  1. Downsizing:

A QRI does not necessarily have to be owned at death in order to qualify for the RNRB. If the deceased has already downsized or sold their property, the RNRB will still be available provided:

  • the property would have qualified if the deceased had retained it; and
  • the replacement property and/or assets form still form part of the deceased’s estate and are closely inherited.
  1. IHT opportunities:

Lifetime planning:

To maximise the chances of qualifying for the RNRB, clients could consider:

  • giving away surplus income to prevent their estate from increasing in value above the £2m threshold;
  • for estates not expected to exceed £2m significantly, making gifts of assets (other than QRIs) to reduce their estate to below the taper threshold;
  • for married couples or civil partners, whose estates are individually worth less than £2m but are together above the threshold:
    • ensuring that the benefit of the two RNRBs is retained by leaving a share of the main residence (or other QRI) to children on the first death; and
    • by leaving other assets up to the value of the standard NRB to children or in a discretionary trust on the first death to reduce the amount passing to the surviving spouse to help keep their estate below the £2m threshold.
  • where the surviving spouse’s estate includes assets eligible for Business Property Relief or Agricultural Property Relief and their value will take the total estate over £2m, it may be worth considering transferring them into a trust before death.


Trusts may be used for various reasons in connection with the home. The type of trust used could affect the availability of the RNRB.

To preserve the RNRB, the property must form part of the deceased’s estate, and on death, become included in the estate of a direct descendant.

Where clients wish to leave their property on trust for their children (e.g. because they are too young), the following trusts can ensure that the RNRB is maintained:

  • Immediate post-death interest trust;
  • Bereaved minor’s trust and 18-25 trust;
  • Disabled person’s trust;
  • Bare trust.

Leaving property to children with an age contingency could make the estate ineligible for the RNRB as the gift is not absolute. Consideration should be given to restructuring the gift, using one of the trusts above, for instance, by giving the children an absolute entitlement at the age of 25 or earlier (so that the trust falls within the definition of a ‘bereaved minors’ or 18-25′ trust).

Where property is left to a discretionary trust, the RNRB will not be available as the property cannot be ‘closely inherited’ (even if the only potential beneficiaries are children or grandchildren). This may, however, be rectified post-death by the trustees making an appointment, as explained below.

Post-death planning:

If the RNRB is not available on death, the following action could be taken within two years of death:

  • by beneficiaries under the will, making a deed of variation to redirect the home (or a share of it) to a direct descendant; or
  • where the deceased has left their home to a discretionary will trust, by trustees exercising a power of appointment, passing the property to a direct descendant.

The direct descendant(s) will then be regarded as inheriting the property directly from the deceased for the purposes of IHT and the RNRB.