The residence nil rate band: the extra £175,000 for your home (UK)

13 September 2026 · Inherit Vault

There's no such thing as a £1 million inheritance tax allowance. There are two separate allowances, and the second one only shows up if you owned a home and left it to the right people. Plenty of estates never get it, and most of them never find out why.

Two thresholds, not one

Everyone gets the basic nil rate band of £325,000. It covers whatever the estate is made of, cash, shares, a caravan. HMRC's table runs that figure from 6 April 2009 to 5 April 2031, one of the longest freezes in the tax system. The residence nil rate band sits on top, worth up to £175,000, and it comes with strings attached to the house itself. The same table shows the £175,000 running to 5 April 2030.

The allowance can't be bigger than the house

The residence nil rate band is the lower of £175,000 and the value of the home your direct descendants actually inherit. Leave a £90,000 flat to your son and you get £90,000, not £175,000. Leave half of a £250,000 house and you get £125,000. The unused part doesn't slide across to cover the rest of the estate, it just evaporates.

Who counts as a direct descendant

Children, grandchildren, and any other lineal descendant. Stepchildren, adopted children, fostered children, and children the person was appointed guardian for. It also stretches to the spouse or civil partner of a lineal descendant, including a widow or widower who hasn't remarried. HMRC is blunt about who's out: nieces, nephews, siblings, and anyone else not on that list. Leave the house to your brother and for that estate the £175,000 simply doesn't exist.

Where the "£1 million" actually comes from

£325,000 plus £175,000 is £500,000 each. Both bands pass to a surviving spouse or civil partner to the extent they weren't used, so a second death can have £1 million of threshold. That headline needs four things at once though. You were married or in a civil partnership, there's a qualifying home, it goes to direct descendants, and the estate isn't too big. Unmarried couples get none of the transfer, part of the common law marriage myth.

Over £2 million and it starts disappearing

There's a taper threshold of £2,000,000, fixed by HMRC's manual for the tax years 2017-18 to 2027-28 and rising with CPI after that. Above it, the residence nil rate band drops by £1 for every £2 of extra value. So a £175,000 band has gone completely by £2,350,000. An estate carrying a full transferred band, £350,000 between the two of them, loses the lot by £2.7 million. Through that stretch you lose 50p of allowance per extra pound, pushing the effective rate well above 40%.

The taper is worked out before reliefs and exemptions

Here's the part that blindsides farms and family businesses. For the taper you value the estate as assets less debts. You do not take off exemptions like spouse exemption, or reliefs like business property relief and agricultural property relief. A farm sits in that calculation at full value, even where relief means little or no tax is actually due on it. So an estate paying almost no inheritance tax can still lose the whole residence band, which ties into what changed for farms and businesses in April 2026.

It can be lost on a death where nobody even used it

The transferable part is a percentage, not a pot of money. HMRC's own example: a man dies with an estate of £2.1 million and leaves the house to his wife, so his estate uses no residence band at all. You'd assume the full 100% carries over. It doesn't. His estate was £100,000 over the threshold, so his allowance had already tapered by £50,000, leaving only 60% to transfer. His widow's estate gets £105,000 instead of £175,000. Nobody spent it, and it still went.

If they sold up or moved into care

Selling the family home doesn't automatically kill the allowance. There's a downsizing addition for anyone who sold, gave away or moved to a cheaper home on or after 8 July 2015. The old home has to be one that would have qualified, and direct descendants must inherit at least some of the estate. You don't tell HMRC at the time of the move, so the paperwork has to survive years in a drawer. And the claim has to be made within two years of the end of the month the person died. Only one disposal counts, so where there were several, the executor picks whichever works out best.

Nobody hands it to you, someone has to claim it

None of this is automatic. Your executor claims it on form IHT435 alongside the IHT400 account, and any transferred band from a late spouse on form IHT436. So the second claim rests on somebody knowing the first spouse died, when, what they owned, and who got the house. Those details are often twenty years old by the time they matter.

Nearly every trap here is an information problem rather than a tax one. The deeds, the date of a first death, the sale of the old flat back in 2016 and the completion statement for it. All knowable while somebody is alive to say so, and expensive to piece together afterwards. Your executor works from what they can find, so write down what you own, how it's held, and where the documents live. What happens to a house when the owner dies is the other half of this, and valuing an estate account by account is where these numbers get used.

Leave your family a map, not a mystery.

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