IHT nil rate band reduction for large estates

tiemadmin • 12 December 2024

Married couples and civil partners may be able to pass on up to £1 million of their estate tax-free with the Residence Nil Rate Band. Claiming this transferable allowance could secure your family home for future generations. Make sure your estate planning takes this into account.

The Residence Nil Rate Band (RNRB) for Inheritance Tax is a transferable allowance available to married couples and civil partners when their main residence is inherited by direct descendants, such as children or grandchildren, after their death.

Currently, the maximum RNRB allowance is £175,000 per person, and it can be transferred to a surviving spouse or partner if unused. This is in addition to the existing £325,000 Inheritance Tax (IHT) nil-rate band. Together with the IHT limit, this allows married couples and civil partners to pass on property valued up to £1 million free of IHT to their direct descendants.

The RNRB is subject to tapering for estates valued over £2 million, even if the family home is left to direct descendants. For every £2 the estate exceeds the £2 million threshold, the additional allowance is reduced by £1. This means that, for large estates, the full amount of the RNRB could be entirely tapered away. This means that for estates valued over £2,350,000 for individuals or £2,700,000 for married couples, the RNRB would be reduced to nil.

The transfer of any unused RNRB does not occur automatically; it must be claimed from HMRC when the surviving spouse or civil partner passes away. Typically, the estate's executor will file the claim to transfer the unused RNRB from the estate of the first deceased spouse or civil partner. This transfer can also be made if the first spouse or civil partner died before the RNRB was introduced on 6 April 2017.

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