The inheritance tax payable on death is normally 40% of the value of a person’s estate above the available nil-rate band. The nil-rate band has been £325,000 since 2009 and is currently set to be frozen until April 2030*. This means that more and more estates are being ‘fiscally dragged’ into paying IHT.

The Residence nil-rate band (RNRB) explained

In addition to the £325,000 nil rate band for inheritance tax, and since 6 April 2020, individuals with estates valued at less than £2.35m have benefited from a residence nil rate band (RNRB) of up to £175,000. This can be applied against the value of their home, as long as it is bequeathed to children or remoter descendants.

This additional amount is also currently frozen until April 2030*.

* Note, this is subject to the Finance Bill 2024-25 receiving Royal Assent.

RNRB tapering when estates go over £2m

For estates valued between £2m and £2.35m, you get some of the residential nil rate band.  It starts being tapered at £2m and disappears altogether at £2.35m.

This tapering means that where an estate is valued at more than £2m, the RNRB is withdrawn by £1 for every £2 of excess. For example, a £2.1m estate would lose £50,000 of the RNRB.

Transfers between spouses

The RNRB can be transferred to a spouse, like the main nil rate band, if not used on the first death of a married couple or civil partnership, assuming their estate qualifies.

Other features of the RNRB

The RNRB applies to any property owned at death that has been the deceased’s main residence during their lifetime. This means that even if someone has moved into a nursing home and is renting out their previous residence, the RNRB is not lost.

Similarly, there are provisions for the RNRB to apply to the proceeds of a previously sold property where someone has downsized. The rules are complicated, so advice should be sought to ensure qualification.

Can we help?

For more details and guidance, please speak with your usual Shipleys contact or one of our specialists shown on this page.

Specific advice should be obtained before taking action, or refraining from taking action, on the basis of this information. Speak with your usual Shipleys contact or one of our specialist team, shown on this page, for more details and guidance.

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