Residence Nil Rate Band

On 6 April 2017 the Residence Nil Rate Band was introduced as an extension to the existing Nil Rate Band of £325,000.

To qualify for the Residence Nil Rate Band the following conditions must be met:-

  • The estate must contain residential property that at some time has been the deceased’s residence; and
  • The residence must be passed to direct descendants such as children or grandchildren.

In situations where the deceased sold or gifted away their home before they died, they can still be entitled to the Residence Nil Rate Band where the downsizing conditions are met.

Unlike the existing Nil Rate Band, the Residence Nil Rate Band is subject to a restriction where the value of the deceased’s estate exceeds £2m.Where the value of the estate, before the deduction of reliefs such as Agricultural Property Relief and Business Property Relief, exceeds £2m, tapering applies to the Residence Nil Rate Band. Where the estate exceeds £2.35m, the Residence Nil Rate Band is tapered to £nil.

The Residence Nil Rate Band has been phased in gradually since 2017/18 and as of 6 April 2020, has reached the maximum amount of £175,000.

Combined with the standard Nil Rate Band of £325,000, it is now possible , where qualification for the Residence Nil Rate band is also met, for an individual’s death estate to incur no Inheritance Tax liability if the value is less than £500,000.

Similarly with the standard Nil Rate Band, the Residence Nil Rate Band is transferable on death to a surviving spouse leaving a potential tax free estate on death of up to £1million per married couple.

The Residence Nil Rate Band can deliver an Inheritance Tax saving of up to £140,000 per couple.It would be sensible to periodically review the terms of your Wills and the value of your estates to understand whether the Residence Nil Rate Band be available and to consider if it would be suitable to make changes to increase the amount available.

Written by Danny Henville ACCA


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