The inheritance tax family home allowance, formally the residence nil rate band, lets you pass a home worth up to £175,000 to your children or grandchildren without inheritance tax, on top of the standard £325,000 tax-free threshold. A single person can shelter up to £500,000 this way; a married couple or civil partners can combine their allowances to shield up to £1 million. Both thresholds are frozen until April 2030.1HM Revenue & Customs. Inheritance Tax Thresholds and Interest Rates
How Much You Can Pass On
Each person has £175,000 of the residence allowance stacked on top of the £325,000 standard nil rate band. Anything above the combined £500,000 is taxed at 40%. If the home is worth less than £175,000, the allowance is capped at whatever the property is actually worth. The standard nil rate band has sat at £325,000 since 2009, and the residence allowance has been £175,000 since 2020, and neither will move with inflation before April 2030.1HM Revenue & Customs. Inheritance Tax Thresholds and Interest Rates
Any unused portion of the standard nil rate band still covers other assets like savings and investments. So the home allowance is genuinely extra, not a substitute.
A Surviving Spouse Inherits the Unused Percentage
When the first spouse or civil partner dies, whatever percentage of their residence allowance they didn’t use passes to the survivor. The transfer works in percentages, not pounds, so the survivor’s estate gets the benefit of whatever cash figure the allowance is set at when they die.2GOV.UK. Transferring Unused Residence Nil Rate Band If the first spouse died before 6 April 2017, when the allowance didn’t yet exist, their unused percentage is treated as 100%.
That’s how you get to £1 million: two full £325,000 standard bands and two full £175,000 residence bands. The transferred percentage is capped at 100% even if the survivor had more than one previous spouse or civil partner.2GOV.UK. Transferring Unused Residence Nil Rate Band
Who Has to Inherit for the Allowance to Apply
The home has to pass to a “direct descendant.” HMRC defines this as someone in the direct line from the deceased: a child, grandchild, great-grandchild, and so on down.3HM Revenue & Customs. IHTM46034 – More Detailed Guidance: Direct Descendants The definition of “child” is wider than biological children. It includes:
- Stepchildren, from the moment the step-relationship forms
- Adopted children
- Foster children, from the point of fostering onward
- Children under the guardianship of the deceased where the guardian was appointed by law and the child is under 18
Lineal descendants of any of those “treated” children also qualify. A stepchild’s own children count as the deceased’s grandchildren for this allowance. The spouse or civil partner of a descendant also counts, and a widowed son- or daughter-in-law still qualifies as long as they haven’t remarried or entered a new civil partnership.3HM Revenue & Customs. IHTM46034 – More Detailed Guidance: Direct Descendants
Siblings, nieces, nephews, and cousins don’t qualify. Neither does a friend or unmarried partner. If the home is left to any of them, no residence allowance applies, no matter how long they lived in the property.
Which Homes Qualify
The property has to be one the deceased lived in at some point while they owned it. It doesn’t need to be their home at the date of death. A former family home that was later rented out can still qualify. A holiday home that was never used as a residence cannot.4HM Revenue & Customs. IHTM46011 – Basic Definitions: Qualifying Residential Interest
Only one home per estate can be nominated. If the deceased owned more than one qualifying property, the executor picks which one to use, and would ordinarily choose whichever gives the biggest tax saving.5GOV.UK. Check if an Estate Qualifies for the Inheritance Tax Residence Nil Rate Band
For a jointly owned home, HMRC looks at each owner’s share separately. Only the deceased’s share of the value counts toward the allowance, not the full market value of the house.6HM Revenue & Customs. Work Out and Apply the Residence Nil Rate Band for Inheritance Tax
The bricks and mortar don’t have to end up in a descendant’s hands. If the executors sell the home during administration and pass the sale proceeds to direct descendants, the allowance still applies.7HM Revenue & Customs. IHTM46033 – Closely Inherited A will that directs the executors to sell and hand the money to a child works the same way.
The £2 Million Taper
The allowance starts shrinking once the total estate is worth more than £2 million. For every £2 above that threshold, £1 of allowance disappears.8HM Revenue & Customs. IHTM46023 – Calculating the RNRB: The Taper Threshold An estate of £2.2 million loses £100,000 of the £175,000, leaving £75,000. By £2.35 million, the whole £175,000 is gone.
Estate value for the taper is worked out before applying exemptions like the spouse exemption or reliefs like business property relief. Debts are still deducted, but those reliefs are deliberately ignored so that wealthier estates can’t dodge under the £2 million line by claiming them.6HM Revenue & Customs. Work Out and Apply the Residence Nil Rate Band for Inheritance Tax The £2 million threshold is fixed until at least the 2027–28 tax year.8HM Revenue & Customs. IHTM46023 – Calculating the RNRB: The Taper Threshold
Because both surviving spouses’ allowances taper, a couple whose combined estate approaches £2 million on the second death can lose the whole extra £350,000 in relief. This is where careful valuation of the estate matters most.
If You’ve Already Downsized or Sold
Selling the family home to move into something smaller, or into a care home, doesn’t automatically forfeit the allowance. If the sale happened on or after 8 July 2015, the estate can claim a “downsizing addition” to recover the allowance that would otherwise be lost.9GOV.UK. How Downsizing, Selling or Gifting a Home Affects the Residence Nil Rate Band There must still be assets (of any kind) passing to direct descendants to trigger it.
If the replacement home is worth less than the maximum allowance, the addition fills the gap up to what the original property would have provided. Someone who sold a £300,000 home and moved into a £100,000 flat could still claim the full £175,000 through the combination of the smaller home and the downsizing addition, provided enough other assets go to descendants.9GOV.UK. How Downsizing, Selling or Gifting a Home Affects the Residence Nil Rate Band
The downsizing claim has a hard deadline: personal representatives must submit it within two years of the end of the month of death, though HMRC can extend this in some circumstances.9GOV.UK. How Downsizing, Selling or Gifting a Home Affects the Residence Nil Rate Band
Planning Moves That Cost You the Allowance
Giving your home to your children while you carry on living in it doesn’t work. HMRC treats this as a “gift with reservation of benefit,” and the property stays in your estate for inheritance tax as though the gift never happened.10GOV.UK. How Inheritance Tax Works: Thresholds, Rules and Allowances – Gifts To make the gift stick, you’d have to move out and hand over full ownership, and then survive seven years. For most families the allowance is best used through a will, not through lifetime gifting of the home.
Leaving the home in the wrong kind of trust also loses the allowance. Discretionary trusts, where trustees decide later which family members benefit, do not qualify because the property isn’t “closely inherited” on the deceased’s death. Contingent gifts fail for the same reason: a will that leaves the home to a grandchild “when they reach age 30” doesn’t count, because the grandchild isn’t entitled on the death itself. Trusts that do work include immediate post-death interests for a direct descendant, disabled person’s interests, and bereaved minor or 18-to-25 trusts (both of which are limited to the deceased’s own children, not grandchildren).
Claiming It and Paying On Time
The allowance is claimed on Form IHT435, which records the property value, the direct descendants inheriting, and their relationship to the deceased.11HM Revenue & Customs. Claim for Residence Nil Rate Band (RNRB) – Schedule IHT435 It goes in with the main inheritance tax return, Form IHT400. For an “excepted” estate (broadly, one whose gross value doesn’t exceed the available thresholds), a full IHT400 may not be needed and the allowance can be claimed through a simpler route.
Inheritance tax is due by the end of the sixth month after death. A death in January means tax is due by 31 July.12GOV.UK. Pay Your Inheritance Tax Bill Interest runs from that date, not from when HMRC issues a demand, so probate delays get expensive. The late payment rate is 7.75% as of January 2026, set at the Bank of England base rate plus 4%.13GOV.UK. HMRC Interest Rates for Late and Early Payments
Property values on the return must reflect open market value. An account that omits assets or undervalues property is treated as incorrect and can trigger a penalty investigation.14HM Revenue & Customs. IHTM36101 – Incorrect Account, Information or Document A professional surveyor’s valuation isn’t legally required, but where the taper is anywhere near in play it earns its cost quickly: a modest overvaluation that pushes the estate above £2 million can strip away tens of thousands of pounds of allowance.