Inheritance Tax on the Family Home: How RNRB Saves a £500,000 House From £70,000 Tax
Inheritance tax on property is charged at 40% on whatever falls above your tax-free allowances. But there is a second allowance — the £175,000 residence nil-rate band (RNRB) — that applies only when you leave your home to your children, grandchildren or other direct descendants. Used in full, it can wipe a £70,000 tax bill on a £500,000 home down to zero.
Most people know the £325,000 nil-rate band. Far fewer understand the residence nil-rate band sitting on top of it, or how easy it is to lose by leaving the house to the "wrong" person. This guide walks through exactly how the RNRB works using a real estate, shows the difference a single beneficiary choice makes, and covers the two things that catch families out most: what happens if you sold the home before death (the downsizing addition) and how the tax on a house can be spread over ten yearly instalments.
The two allowances every estate gets
Before any inheritance tax (IHT) is due, an estate can use one or two tax-free bands:
- The nil-rate band (NRB): £325,000. Available to every estate, on any kind of asset. Frozen at this level since 6 April 2009 and held there until 5 April 2031.
- The residence nil-rate band (RNRB): £175,000. Available only when a residence is left to direct descendants. Frozen at £175,000 since 6 April 2020 and held there until 5 April 2030.
Anything above the combined allowances is taxed at the standard rate of 40% (or a reduced 36% if at least 10% of the net estate is left to charity). These figures are confirmed on GOV.UK's Inheritance Tax guidance and the official residence nil-rate band page.
The £175,000 RNRB is not a general allowance. It only applies to the value of a home (or share of one) that passes to a direct descendant. Leave the house to anyone else and the RNRB simply doesn't apply — you fall back on the £325,000 NRB alone.
Who counts as a "direct descendant"
This single definition decides whether your estate gets the extra £175,000. According to GOV.UK, direct descendants include:
- A child, grandchild or other lineal descendant
- A step-child, adopted child or fostered child
- A child you were appointed guardian or special guardian for while they were under 18
- The spouse or civil partner of any of the above (including their widow, widower or surviving civil partner, as long as they haven't remarried)
Direct descendants do not include: nieces, nephews, siblings, parents, or unrelated friends and partners you aren't married to. This is the line that most often costs families £70,000 — see the comparison below.
Worked example: a £500,000 home in a £700,000 estate
Margaret Okafor, a widow, dies in 2026 leaving a total estate of £700,000. That breaks down as:
- Family home: £500,000
- Savings and investments: £200,000
Her will leaves everything to her two children in equal shares. She has not used any allowances on lifetime gifts, and (to keep the example clean) she is not using any transferred allowance from a late spouse. Here is the calculation step by step.
Step 1 — Add up the allowances. Because the home passes to her children (direct descendants), Margaret's estate qualifies for both bands:
- Nil-rate band: £325,000
- Residence nil-rate band: £175,000 (capped at the lower of £175,000 or the home's value — here the £500,000 home is well above £175,000, so the full £175,000 applies)
- Total tax-free: £500,000
Step 2 — Subtract the allowances from the estate.
£700,000 − £500,000 = £200,000 taxable
Step 3 — Apply 40%.
£200,000 × 40% = £80,000 inheritance tax due
Now compare: if Margaret had qualified for only the £325,000 NRB (for example, by leaving the home to a sibling instead), her taxable estate would be £700,000 − £325,000 = £375,000, taxed at 40% = £150,000.
The residence nil-rate band saved her family £70,000 (£150,000 − £80,000) — exactly £175,000 of relief at 40%.
| Scenario | Allowances used | Taxable estate | IHT at 40% |
|---|---|---|---|
| Home left to children | £325,000 + £175,000 = £500,000 | £200,000 | £80,000 |
| Home left to a sibling/nephew | £325,000 only | £375,000 | £150,000 |
| Difference | RNRB lost | +£175,000 | +£70,000 |
Note: a surviving spouse can also inherit a deceased partner's unused allowances, potentially giving a married couple up to £325,000 + £325,000 + £175,000 + £175,000 = £1,000,000 of combined relief. We've left that out of the example above to isolate how the RNRB works on its own.
Why leaving the home to a sibling or nephew loses the RNRB
The RNRB is generous, but it is strictly conditional. If your will leaves the home — or a share of it — to anyone who is not a direct descendant, that portion gets no residence nil-rate band at all.
Common ways families accidentally lose it:
- Leaving the house to a sibling. A brother or sister is never a direct descendant, even if they cared for you. The home's value gets only the £325,000 NRB.
- Leaving it to a niece or nephew. Same result — no RNRB. This is the single most common avoidable mistake we see for people without children of their own.
- Leaving it to an unmarried partner. A partner you live with but aren't married to (or in a civil partnership with) is not a direct descendant. The home left to them gets the NRB but not the RNRB.
- Certain discretionary trusts. If the home passes into a discretionary trust where descendants are only potential beneficiaries, the RNRB can be lost. Specialist drafting (or an immediate post-death deed of variation) may be needed.
Brian Whitlock, a childless widower, dies in 2026 with a £700,000 estate identical to Margaret's — a £500,000 home and £200,000 in savings. He leaves the house to his favourite nephew and the savings to charity-adjacent causes.
Because a nephew is not a direct descendant, the home gets no RNRB. His estate uses only the £325,000 nil-rate band:
- £700,000 − £325,000 = £375,000 taxable
- £375,000 × 40% = £150,000 inheritance tax
Brian's estate pays £70,000 more than Margaret's on an identically-sized estate — purely because of who inherited the house. Had he had children or grandchildren to leave it to, that £70,000 would have stayed in the family.
The downsizing addition: keeping the RNRB after you sell
A frequent worry: "I sold the family home and moved into a flat (or a care home). Have I lost the RNRB?" The answer is usually no, thanks to the downsizing addition.
The downsizing rules exist so that someone who sells a higher-value home — or sells up entirely — late in life isn't penalised compared with someone who simply kept the house. To qualify, GOV.UK sets out that:
- The former home was sold (or you downsized to a less valuable one) on or after 8 July 2015;
- The former home would have qualified for the RNRB had you still owned it at death; and
- At least some of the estate is left to direct descendants.
Patricia Nwosu owned a house worth £500,000. In 2024 she sold it and moved into a £250,000 retirement flat, banking the difference. She dies in 2026 leaving the flat and her savings to her son.
Her current home (the £250,000 flat) only "uses up" £175,000 of RNRB available to it — but because £175,000 is the maximum, the flat alone already absorbs the full band, so in her case no separate downsizing addition is needed.
Now change the facts: suppose she had moved into a much smaller £100,000 flat. The flat would only attract £100,000 of RNRB on its own, leaving £75,000 of the band apparently "wasted". The downsizing addition restores that lost £75,000 — provided she leaves at least that much of her estate to her son — so her estate can still claim the full £175,000 of residence relief. The exact "lost RNRB" figure is calculated by comparing the band the old home would have attracted with the band the current home attracts; HMRC's downsizing guidance and form IHT435/IHT436 walk through the precise sum.
The mechanics can get fiddly — there are records to keep (sale completion statements, the value of the old home) and a specific HMRC calculator. The headline reassurance is simple: selling or downsizing does not automatically forfeit your residence nil-rate band, as long as you still leave value to direct descendants.
Paying the tax on a house: the 10-year instalment option
A house is illiquid. You usually can't sell it before probate is granted, yet IHT on most of the estate is due by the end of the sixth month after death. For property, HMRC offers relief from this cash-flow trap: you can elect to pay the inheritance tax attributable to land and buildings in up to 10 equal annual instalments, as set out on GOV.UK's paying by instalments guidance.
Key points to understand:
- First instalment is due at the end of the sixth month after death; the remaining nine fall on the same date in each following year.
- Interest is charged on the outstanding balance for property. The first instalment carries no interest if paid on time, but every later instalment accrues interest on the tax still owed. HMRC's current interest rate for late and instalment IHT is 7.75% (rate effective 9 January 2026 — check the current figure on the HMRC rates page before relying on it, as it tracks the Bank of England base rate).
- Selling triggers the balance. If you sell the property, all remaining instalments (plus interest) become payable immediately.
Return to Margaret Okafor's estate. Her IHT bill was £80,000, and the £500,000 home represents the bulk of her estate. Suppose her executors elect to pay the property-related portion by instalments. To keep the maths transparent, assume the whole £80,000 relates to the house (in practice the executors would apportion).
£80,000 ÷ 10 = £8,000 per year.
The first £8,000 is interest-free if paid on time. After that, interest at 7.75% applies to the falling balance. A rough illustration of the interest in year two: the outstanding balance after the first payment is £72,000, so a full year's interest at 7.75% would be about £5,580, falling each year as the balance reduces. Over the full ten years the total interest could run into the low thousands per year early on, tapering to almost nothing at the end — a meaningful cost, but often far cheaper than a forced fire-sale or a bridging loan. Executors typically clear the balance the moment the house sells.
- Every estate gets the £325,000 nil-rate band; estates that leave a home to direct descendants also get the £175,000 residence nil-rate band.
- On a £700,000 estate with a £500,000 home left to children, IHT is £80,000 — versus £150,000 if the home goes to a sibling or nephew. The RNRB is worth £70,000.
- Direct descendants are children, grandchildren, step/adopted/foster children and their spouses — not siblings, nieces, nephews or unmarried partners.
- Selling or downsizing your home doesn't lose the RNRB — the downsizing addition can restore it, provided you still leave value to descendants.
- Tax on a house can be spread over 10 yearly instalments, but interest (currently 7.75%) accrues on later instalments, and selling the property brings the whole balance due.
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Frequently asked questions
Is the residence nil-rate band really £175,000?
Yes. The RNRB has been £175,000 since the 2020–21 tax year and is frozen at that level until 5 April 2030, according to HMRC's published rates. It sits on top of the £325,000 standard nil-rate band, so an individual leaving a qualifying home to children can shelter up to £500,000 before any IHT is due.
Do I lose the RNRB if my home is worth less than £175,000?
The RNRB is capped at the lower of £175,000 or the value of the home passing to direct descendants. So a £120,000 home only attracts £120,000 of residence relief — the remaining £55,000 of the band can't be used against other assets (unless the downsizing rules apply because you previously owned a more valuable home).
Can a married couple combine allowances?
Yes. When the first spouse or civil partner dies leaving everything to the survivor, their unused nil-rate band and residence nil-rate band can transfer. A surviving spouse's estate can therefore potentially claim up to £325,000 + £325,000 + £175,000 + £175,000 = £1,000,000 of combined relief on a qualifying home left to descendants. The transferred bands must be claimed on the forms — they aren't automatic.
What happens to the RNRB on a £2 million-plus estate?
The RNRB tapers away on larger estates. For every £2 the net estate exceeds £2 million, the residence nil-rate band reduces by £1. That means the full £175,000 band is gone once the estate reaches roughly £2.35 million (or £2.7 million where a full transferred band applies). This is GOV.UK's "taper threshold".
Is paying IHT by instalments always cheaper?
Not necessarily. Instalments help cash flow when the main asset is an unsold house, but interest (currently 7.75%) accrues on the outstanding balance after the first payment. If the property sells quickly, executors usually clear the whole balance to stop interest building up. Compare the instalment interest against the cost of a short-term loan or simply waiting for the sale.
Where do I claim the RNRB and downsizing addition on the forms?
The residence nil-rate band is claimed on form IHT435, and the downsizing addition on form IHT436, submitted alongside the main IHT400 account. HMRC's residence nil-rate band guidance links to both forms and an online calculator that works out the exact figures for you.