What the Residence Nil Rate Band Really Means for Your Estate
Peter McGahan
Monday 28th July, 2025.
IF I told you that you and your partner could leave £1million tax-free to your children, you might raise a glass and boot the financial paperwork back in the “that’s me done” drawer. But that headline number, like most headlines, needs a big shiny Asterix sticker.
In 2017, the Residence Nil Rate Band (RNRB) was introduced with a lot of trumpeting and, predictably, a lot of confusion. It promised to help families pass on the family home without a massive tax bill. The small print, as always, tells the real story.
So, what is this RNRB and why does it matter?
In short, it’s an additional inheritance tax (IHT) allowance, on top of the standard nil rate band of £325,000 which applies when you leave your home to direct descendants. As of now, it's worth £175,000 per person. Add that to your standard allowance, double it for a couple, and there’s your £1million tax-free potential.
Sounds great? But, like a chocolate teapot, it only works under the right conditions.
The RNRB doesn’t apply unless your estate meets a set of good old Goldilocks criteria: not too big (under £2million), not too small (must own a home), and left to the “right” people namely, children or grandchildren. Leave your home to your unmarried partner or a discretionary trust, and the RNRB vanishes faster than a politician’s promise, three minutes after the election result.
And if your estate is over £2million? For every £2 above that threshold, you lose £1 of the RNRB. That means if your estate tops £2.35million, you might lose the entire £175,000 allowance altogether.
So, what can you do? Here’s where the planning comes in and why simply hanging on to an old Will from before 2017 could cost your family dearly.
If you and your partner own your home as tenants in common and your Will leaves your share to a discretionary trust “for flexibility,” stop. And reflect on that. That arrangement could waste your RNRB because the home isn’t passing directly to descendants. Instead, consider updating the Will so your share goes outright to children or into a specific kind of trust, like an Immediate Post-Death Interest trust, which preserves the allowance.
You haven’t any children? No change - this band doesn’t apply. But for those with children, especially with estates nearing or exceeding £2 million, a simple shift like gifting part of the estate early could preserve the allowance and trim the tax bill.
What’s the downsizing trap? Have you sold the big family home and moved to a smaller flat or care home? The downsizing provisions allow you to claim a notional RNRB, provided you leave equivalent assets to your children. But again, only if the Will is properly structured.
Are you single but not childless? Single individuals with children can still use the RNRB. But they must be careful not to pass their property to, say, a new partner without marriage. In that case, the allowance is lost. Structuring the will so children inherit the home (even after a life interest for the partner) can make all the difference.
And what’s the hidden cost of inaction? It’s tempting to think, “We’re under the threshold. We’ll be fine.” But home values rise, investments compound, and the RNRB (like the NRB) is frozen until at least 2030. Do nothing, and you might drift into the ‘taper zone’, losing valuable relief bit by bit.
Wills written before 2017 should be reviewed with your solicitor as soon as possible. Trusts should be examined with a fine-tooth comb. And where estates exceed £2million, advisors can explore using gifts, trusts, or life insurance to manage future inheritance tax burdens.
As you will have heard me say many times, apathy is the most expensive habit in finance. If you’ve got a home, a family, and a Will older than your car, it's time for a financial service - not a new one, but a review of the old.
Your estate doesn’t plan itself, and your family shouldn’t pay the price for any inertia.
If you have an inheritance tax query, please call 01872 222422 or email info@wwfp.net or visit us on www.wwfp.net
Peter McGahan is the Chief Executive Officer of independent financial advisers Worldwide Financial Planning. Worldwide Financial Planning is authorised and regulated by the Financial Conduct Authority.
