News & Views

Inheritance tax and the Residence Nil-Rate Band (RNRB)

As we reported in 2015, a new RNRB is being introduced from 6 April 2017. The previous blog goes into detail about how the RNRB will apply to estates, this post will focus on recent developments.

The “Residence”

The property doesn’t actually have to be the deceased’s main residence or owned for a minimum period. It can be any property that the deceased lived in at any time during their lifetime as long as that property is part of their estate. Buy-to-let properties will not qualify.

If the value of the home is left to direct descendants is less than the RNRB then the RBRB is limited to the value of the property.

Downsizing and Disposing 

The legislation now allows for a downsizing provision where the main residence is sold. The requirement is that the property would have been included in the deceased’s estate prior to downsizing or disposal (which has to have happened on or after 8 July 2015) and would have qualified for RNRB if the deceased had kept it.


There is a potential problem with the RNRB and will trusts. If a property is placed into trust upon a person’s death, the RNRB will only be available if:

  1. the person who benefits from the trust is a direct descendant and
  2. the home is the beneficiary’s estate for tax purpose

Because discretionary will trusts are not normally part of a beneficiary’s estate, they will not be eligible for the RNRB. Disabled beneficiary trusts, bereaved minor trusts and 18-25 trusts should all still be eligible. Anyone with a discretionary will trust should be able to appoint the trust fund out within two years of death and benefit from the RNRB, but advice should be sought.


The RNRB will be gradually withdrawn on estates greater than £2m. The RNRB will reduce by £1 for every £2 that the value of the estate is over £2m. Careful planning is needed (especially between spouses) to ensure that the relief isn’t lost because one spouse has more assets than the other.

If you would like any further information about the RNRB, wills or estate planning, in general, please contact Raveet Phull or our Private Client Team.


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