The “£1m” Residence Nil Rate Band

BLOG24th May 2017

Since it’s grand unveiling in the Summer Budget 2015, much publicity has been given to the generous new £1m Residence Nil Rate Band (RNRB) which came into being on 6 April 2017. However, is the new allowance all that it appears?

What is the RNRB?

Most people are already aware of the current Nil Rate Band (NRB) allowance, the tax-free limit on which no Inheritance Tax (IHT) is payable.  The NRB has been £325k for several years and will remain at this level until at least 2020/21.  Non-exempt assets in excess of the NRB on death are subject to IHT at the rate of 40%.

Any part of the NRB not used on first death is transferrable to a surviving spouse to be used on second death.  A married couple with simple estates will therefore benefit from total tax-free allowances of £650k.

The RNRB provides an additional tax-free allowance. For deaths on or after 6 April 2017 the maximum value of the new allowance is as follows:

Tax year of death Maximum Available RNRB
2017/2018 £100,000
2018/2019 £125,000
2019/2020 £150,000
2020/2021 £175,000


From 2021 both the NRB and the RNRB are set to rise in line with the Consumer Prices Index.

£1m Tax-Free?

As can be seen from the above table, the maximum additional allowance available from 2020/21 is £175k per person.  This, together with the NRB of £325k, provides the taxpayer with an overall potential tax-free limit of £500k.

Herein lies the first misconception in relation to the new allowance – the £1m is not per person but is available only in the case of a married couple.

Add to this various other conditions and limitations and the new allowance is perhaps not as generous as the taxpayer might have been led to believe.

Lifetime Transfers

Whilst the standard NRB is available on death and for gifts made during lifetime (renewing every 7 years in the case of the latter), the RNRB is available only on death.


If the deceased’s total estate exceeds £2m then the RNRB will be tapered.  By 2021, an estate of £2.23m will not qualify for any RNRB.

This will mean that the estates of a number of taxpayers will in fact never receive the additional allowance. It is of course tricky to predict inflation and growth on capital values, however those on the cusp of the limit, should seek tax planning advice.

“Direct Descendants”

In order to qualify for the allowance, the deceased’s residence must be left to a direct descendant.

The legislation includes a detailed list of those who are regarded as “direct descendants” including, but not limited to, a child, grandchild or other lineal descendant; a step-child; an adopted child and a fostered child.  It does not include the child of a partner.

The condition will also fail to be satisfied where the deceased’s property is left on Discretionary Trust for the benefit of their child(ren).


The property will only qualify for the additional relief if it was the deceased’s main home at some point in time. A property owned by the deceased but never occupied as a main residence, such as a buy-to-let property, cannot qualify for the relief.

The relief is restricted to the value of the property.

Downsizing Provisions

In recognition of the fact that the legislation may encourage people to remain in large houses which have become unsuitable for them, the provisions have been drafted to allow the new allowance to be “banked” where the family home is sold for the purpose of downsizing.

The provisions are cumbersome but in general terms they provide that where the main home has been sold, the value at this time is frozen and can be used on death to take advantage of the RNRB on the condition that equivalent value is inherited by direct descendants.

This may be advantageous where the new home is much smaller and less valuable and likely to remain so, however the value of the relief will be eroded by inflation over time.

For more information contact Lisa Tait, Manager ( or your usual AAB Contact.