The residence nil-rate band explained
An extra £175,000 each — but only if your home passes to direct descendants, only up to the value of the home, and only if your estate is under £2,000,000.
The short answer
- Worth up to £175,000 per person, on top of the £325,000 nil-rate band.
- Only applies if your home passes to direct descendants — children, grandchildren, stepchildren, adopted and foster children.
- It is capped at the value of the home passing to them.
- It tapers away by £1 for every £2 of estate above £2,000,000, and disappears entirely on large estates.
- Like the main band, the unused portion transfers to a surviving spouse, giving a couple up to £350,000.
What's on this page
What it is#
An additional inheritance tax allowance introduced to take family homes out of the tax. It is worth up to £175,000 per person, and it stacks on top of the £325,000 nil-rate band — which is how a couple reaches £1,000,000.
The three conditions#
1. A home must pass on death#
It must be a property you lived in at some point as your residence — not a buy-to-let you never occupied. If you owned more than one qualifying home, your executors nominate which one it applies to.
2. It must pass to direct descendants#
- Who counts
- Children, grandchildren and remoter descendants; stepchildren; adopted children; foster children; children you were appointed guardian or special guardian for. Also the spouse or civil partner of any of those, and their widow or widower if they have not remarried.
- Who does not
- Nieces, nephews, siblings, parents, friends, and unmarried partners.
This is a drafting question as much as a family one. A will that leaves the home to a sibling, or into certain kinds of discretionary trust, can lose the allowance entirely.
3. It is capped at the value of the home#
The allowance cannot exceed the value of the property passing to descendants. If your home is worth £120,000, your residence nil-rate band is £120,000, not £175,000.
The taper — where large estates lose it#
If your estate exceeds £2,000,000, the residence nil-rate band reduces by £1 for every £2 above that figure. An estate of £2,350,000 loses £175,000 of allowance — the whole of one band.
The taper is tested against the whole estate before reliefs and exemptions, and it produces an effective marginal tax rate of around 60% in the taper zone. If your estate is anywhere near £2,000,000, this is the single strongest argument for taking proper advice on lifetime gifting.
The transferable residence band#
Like the main nil-rate band, any unused residence allowance transfers to a surviving spouse or civil partner. Two important quirks:
- It can be claimed even if the first partner died before the allowance existed — the estate is treated as having had an unused band.
- It must be claimed by the executors, on form IHT436.
Downsizing and selling up#
You do not lose the allowance by moving somewhere smaller or into care. The downsizing addition preserves it where you sold or gave away a home on or after 8 July 2015, provided assets of at least equivalent value pass to direct descendants instead.
The calculation is genuinely fiddly and depends on values at the time of the disposal. Keep the completion statement and a record of the property's value — your executors will need them.
What to check in your own will#
- Does your home actually pass to direct descendants under the will, on the second death?
- If a trust is involved, is it a type that preserves the allowance? A life interest trust for a spouse with children as remaindermen is normally fine; some discretionary trusts are not.
- Is your estate near £2,000,000?
- Do your executors know to claim IHT402 and IHT436, and can they find the paperwork?
Run your figures through the calculator to see what the allowance is worth in your case.
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Frequently asked questions
Do stepchildren count as direct descendants?
Yes. Stepchildren, adopted children, foster children and children you were appointed guardian for all qualify, as do their own children. Nieces, nephews and siblings do not, which is a common and expensive surprise for people without children of their own.
What if I have already sold my home and moved into care?
The downsizing addition can preserve the allowance where you disposed of a home on or after 8 July 2015, provided assets of at least equivalent value pass to direct descendants. Keep the sale paperwork — the calculation depends on the property's value at the time.
Does the residence nil-rate band apply if my home is in a trust?
It depends on the type of trust. A life interest trust for a surviving spouse with children as ultimate beneficiaries usually preserves it. Some discretionary trusts do not, because no descendant becomes absolutely entitled. If your will contains a trust over the home, ask your adviser to confirm in writing that the allowance survives it.
Can I claim it if I never owned a home?
Not unless the downsizing rules apply — the allowance requires a qualifying residential interest. Lifelong renters with no property to leave cannot claim it, which is one of the fairness criticisms levelled at the allowance.
This is general information, not legal advice. Everyone's situation is different — speak to a qualified adviser before acting. KeepTheLot is an independent information service covering England & Wales. We are not a law firm.
Part of our guide to inheritance tax.