Inheritance Tax Residence Nil-Rate Band

People may not be aware of the Residence Nil-Rate Band for Inheritance Tax. This is an additional allowance for deaths occurring after the 6th of April 2017 ...

If you want to claim the relief, you must own a residential property (or share in it), and you should have lived there at some point. It also has to be left to your direct descendants such as children, grandchildren or even step-children.

When you have an estate worth over £2 million, the relief is reduced of £1 for each £2 it is worth over that £2 million threshold. Additionally, it only applies on death and does not apply for gifts or other lifetime transfers.

"The Inheritance Tax Residence Nil-Rate Band threshold is £175,000 for the 2021/22 tax year!"

The relief's value is applied to the estate first, then the Nil-Rate Band, which is currently £325,000, is applied. Both the Nil-Rate Band and the Residence Nil-Rate Band are frozen until the 5th of April 2026.

Where the value of the property is below the Residence Nil-Rate Band, the remaining balance cannot be offset against another part of the estate, and the relief can be transferred to a spouse, even if one of them died before 2017. There is also a downsizing addition, so if you sell or give away your home, although the tax calculations are far more complicated.

The Residence Nil-Rate Band relief could be lost if you own no property at the moment of your death or if your direct descendants do not inherit it, such as when it is put in a trust.

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