The residence nil rate band (RNRB) is an additional nil rate band that is available for inheritance tax purposes when a main residence is left to a direct descendant, such as a child or grandchild. Adopted children, stepchildren, children fostered at any time by the deceased and a child for whom the deceased was appointed a guardian or special guardian when the child was under 18 all count equally as direct descendants.
As with the nil rate band, it can be transferred to the surviving spouse or civil partner. Like the nil rate band, the surviving partner inherits the unused percentage of the deceased’s RNRB. However, this must be claimed by their executor on their death.
High value estates
The RNRB is available in full where the value of the estate is £2 million or less. For estates valued at more than £2 million, the RNRB is reduced by £1 for every £2 by which the value of the estate exceeds £2 million.
RNRB for 2021/22
The RNRB remains at its 2020/21 level of £175,000 for 2021/22. With a nil rate band of £325,000, a married couple or civil partners can pass on £1 million free of IHT as long as a main residence worth at least £350,000 is left to a direct descendant. They each have nil rate bands totalling £500,000 available to them. Special provisions apply to preserve the availability of the RNRB where the deceased has downsized or gone into care.
For 2021/22, the RNRB is not available to estates valued at more than £2.35 million.
RNRB frozen until April 2026
In common with many other thresholds, the RNRB is frozen until April 2026, remaining at its 2021/22 level of £175,000 for 2022/23, 2023/24 and 2025/26.
The lack of inflationary rises in the RNRB and the nil rate band may necessitate some forward planning if the value of the estate is likely to exceed the available nil rate bands. Giving away property in advance will not only open up the possibility of taking it outside the charge to inheritance tax if the deceased survives seven years and reducing the charge if the deceased survives at least three years from the date of the gift, it also protects against inflationary increases.
Where the main residence is owned as tenants in common, consideration could be given to each spouse/civil partner leaving their share to their children or grandchildren on their death, rather than to the surviving spouse/civil partner as this will offer some protection against rising property values.
Partner note: Finance (No. 2) Bill 2019—21, cl.