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10 things you need to know about the Main Residence Nil Rate Band

The main residence nil rate band (MRNRB) was first introduced in the Summer Budget 2015 and came into force on 6 April 2017. The aim is to reduce the burden of Inheritance tax for most families, making it easier to pass on the family home to direct descendants without a tax charge. The new allowance is essentially a top-up that will run alongside the existing nil-rate band of £325,000 and its introduction means that with careful planning, married couples could help to protect the first £1 million of their joint estate.

Whilst the introduction of the new allowance is a positive step in inheritance tax planning, the new relief is complex and there is still some uncertainty around its application. As financial planners, we have had a fair few questions from our clients to find out more information, so here are ten common questions on the subject…

How much is it?

The new nil-rate band will effectively be a top-up of the existing nil rate band of £325,000; for those who qualify, from 6 April 2017 you will be entitled to an additional £100,000, this allowance will increase each tax year until 2020 up to £175,000. From 2020 onwards, the nil-rate band will increase in line with the Consumer Price Index (CPI).


Is it affected by property values?

The above amounts are the maximum relief you might receive. The available allowance will be reduced if the value of the property is less than this. For example: A father dies in 2020/21 and his Will gifts 50% of the family home to his children. The value of the property at his death is £200,000, he owns this jointly with his wife, therefore his share is valued at £100,000. The available allowance is £175,000 so in this scenario, the extra £75,000 would go unused (but may be transferred to his widow!).


Can it be transferred?

Like the existing nil rate band, for married couples and civil partners any unused MRNRB can be transferred on first death to the surviving spouse. This can also be done if one of the couple died before 6 April 2017, even though the additional threshold wasn’t available at that time. Should this be the case the transferable amount is limited to £100,000.


Who can benefit?

The main residence nil rate band will be available for anyone who dies on or after 6 April 2017 and owns a residential property with a “qualifying residential interest”. Broadly speaking, it will apply to a property that was the deceased’s main residence at some point during their lifetime. The property doesn’t have to be the deceased home when they pass away, if the individual owns more than one property (and resided in this property during their lifetime). Whilst only one property will benefit from the allowance, the executors can nominate the property they would like to be covered.

Properties that have been purchased for a buy-to-let purpose only do not qualify.

Who can inherit?

The property must pass to the direct descendants of the deceased. For the purposes of the residential NRB, a direct descendant is classified as:

  • A child, grandchild or other lineal descendant i.e. great-grandchildren
  • a spouse or civil partner of a lineal descendant (including their widow, widower or surviving civil partner)
  • a child who is, or was at any time, their step-child
  • an adopted child
  • a child who was fostered at any time by the deceased
  • a child where the deceased was appointed as a guardian or special guardian whilst the child was under 18

What if the house goes into a trust?

The legislation refers to property being left outright. In many instances people have created a trust arrangement to receive the property until beneficiaries have reached a certain age. In these circumstances, our understanding is the MRNRB would only be available where the property passes to the following trusts on death:

  • A bare trust
  • A disabled persons trust
  • A trust for a bereaved minor


Discretionary trusts, however, are thought to be excluded at this stage, possibly due to the flexibility of beneficiaries that they allow.

If you wish to consider utilising a trust we recommend that you seek specific advice from legal professionals.

Do you need to own a home on death to benefit?

Not necessarily. Those who have downsized or disposed of their property before death (for example due to going into care) can in some instances still qualify for some relief under the downsizing provisions. However, these provisions only apply if the deceased disposed of the property after 8 July 2015. The downsizing provisions are not straightforward however and further information about the existing circumstances would be needed to establish if the downsizing provision would apply

Can you lose it?

The MRNRB is reduced by £1 for each £2 an estate is over £2m. In this case the “estate” is defined as the value of a person’s estate immediately before the person’s death. This means after the deduction of debts outstanding but ignoring any additional reliefs that might be available such as business property relief.

Can an estate above £2m do anything about it?

If the deceased made any gifts prior to their death these are all ignored when working out the value of the estate for the purposes of assessing eligibility for the MRNRB. Even if the deceased made a gift of £1m the day before death, which reduced the value of his estate to £1,999,999, then the estate would be eligible to apply for MRNRB relief (providing the other relevant conditions are satisfied), although there would still be other IHT implications here.

Is there anything else I need to know?

As often happens when legislation is intended to simplify, the MRNRB arguably does a good job of the opposite. The legislation underpinning these rules are fairly hefty and complex, meaning the need for professional advice is important. Any change in the law should always prompt people with (or without!) wills to review their affairs, particularly when a couple of relatively minor changes could potentially lead to a significant IHT saving.   

The information provided through the Equilibrium website is based on our opinion and is for general information purposes only. It is not, and should not be construed as financial advice.