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Inheritance Tax- the Residence Nil Rate Band and downsizing

the residence nil rate band and downsizing ; RNRB; inheritance taxThe residence nil rate band (RNRB) is an additional nil rate band, which is available where a death occurs on or after 6 April 2017 (or, in the case of married couples and civil partners, the death of the second spouse/civil partner occurs after that date) and the property is left to direct descendants.

The RNRB is set at £100,000 for 2017/18, £125,000 for 2018/19, £175,000 for 2019/20, and £175,000 for 2021/21.

The allowance is reduced by £1 for every £2 by which the value of the estate exceeds £2 million.

As with the normal nil rate band, any unused portion is transferred to a spouse or civil partner on his or her death.


Availability of the RNRB may be preserved where a person downsizes on or after 8 July 2015. If at the date of death the estate does not qualify for the full RNRB, a downsizing addition may be available if the following conditions are met:

the deceased disposed of a former home and either downsized to a less valuable home or ceased to own a home, on or after 8 July 2015;

the former home would have qualified for the RNRB;

at least some of the estate is inherited by direct descendants.

The amount of the downsizing addition will generally be equal to the amount of the RNRB that is lost because the residence no longer forms part of the estate. Assets at least equal to the RNRB plus downsizing addition must be left to direct descendants.


Calculating the downsizing addition

Work out the RNRB that would have been available when the disposal of the former home took place (set at £100,000 where this is between 8 July 2015 and 5 April 2017) plus any transferred RNRB available at the date of death.

Divide the value of the home by the figure in step 1 and multiply by 100%. If the value of the former home is more than the step 1 value, the percentage is 100%.

If there is a home in the estate at death, divide the value of the home on death by RNRB available on death and multiply by 100%.

Deduct the step 3 percentage from the step 2 percentage.

Multiply the step 4 result by the additional threshold available at death to get the downsizing addition.

If the person has downsized to a less valuable home, but this is still more than the RNRB at death, there will not be a downsizing addition.


Case study

Jack and Eva sold their family home in September 2016 for £500,000 and bought a retirement flat. Eva died in April 2017, leaving all her estate to Jack. Jack died in August 2020, leaving his estate, valued at £900,000 equally to the couple’s two daughters. The retirement flat is valued at £280,000.

The downsizing addition is calculated as follows:

The RNRB available when the property was sold was £100,000. Jack is also entitled to a transferred RNRB of £175,000. The total available is therefore £275,000.

The value of the disposed residence is more than £275,000, so the percentage is 100%.

The value of the home at the date of Jack’s death is £280,000. The RNRB available is £350,000 (RNRB nil rate band for 2020/21 plus 100% transferred nil rate band unused by Eva).

The retirement flat uses up 80% of the RNRB available at death (£280,000/£350,000 x 100%). 

The lost RNRB is 20% (100% - 80%). This is available as a downsizing addition of £70,000 (20% of £350,000).

If Jack and Eva had not purchased a new home, the downsizing addition would be equal to the RNRB available at death.


Get in touch with Inform if you need further advice on Inheritance tax, Residence nil rate band and downsizing or any other tax related matter.   

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