Are You Missing Out on Tax Relief?

• Posted onOctober 23, 2025

Inheritance Tax (IHT) can come as a shock to families who assume their home and savings will simply pass down without complications. In recent years, the government introduced a valuable allowance called the Residence Nil-Rate Band (RNRB), which can help reduce or even eliminate IHT for many families. But it isn’t always automatic, and not everyone qualifies. Understanding how it works can make a real difference to what your family ends up paying after you’re gone.

So what exactly is the Residence Nil-Rate Band, and why do so many people miss out on it?

What is the Residence Nil-Rate Band?

The RNRB is an extra tax-free allowance that applies when you leave your home to your direct descendants, such as your children or grandchildren. On top of the standard IHT threshold of £325,000, the RNRB gives individuals an extra allowance. For the current tax year, that amount is a maximum of £175,000.

This means that if you leave your home to a direct descendant, your estate could benefit from a total tax-free allowance of up to £500,000. For married couples or civil partners, it’s potentially up to £1 million when both allowances are combined.

But not everyone gets the full benefit, and that’s where things get a bit more complex.

Who qualifies?

To qualify for the RNRB, you must leave your home to direct descendants. This includes children, stepchildren, adopted children, and grandchildren. If you leave the house to a niece, nephew or friend, the allowance won’t apply. Likewise, if your Will leaves everything to your spouse and only passes to the children after their death, the RNRB is not used until that later date.

It also only applies to a property you’ve lived in. If you own more than one property, you can’t apply the RNRB to a buy-to-let or holiday home you never lived in yourself.

What if I’ve already downsized or sold my home?

The government recognised that many people move into smaller homes or even into care before they die. So the RNRB can still apply, even if you no longer own the home you once lived in, as long as certain conditions are met. This is often called the “downsizing addition” and it helps ensure you’re not penalised for making sensible choices later in life.

However, claiming the downsizing allowance can involve more paperwork, and it’s important to keep records of previous property ownership and the proceeds from any sale.

When is the RNRB lost?

One of the most common ways people lose the RNRB is by failing to structure their Will properly. For example, if you leave your estate in a discretionary trust for the benefit of your children or grandchildren, this might not qualify unless certain steps are taken. It’s an area where professional advice is essential, especially if your family circumstances are more complicated.

Another key point is that the RNRB is reduced once your estate is worth more than £2 million. For every £2 your estate exceeds that threshold, you lose £1 of the allowance. This means that if your estate is over £2.35 million, you may lose the RNRB entirely. This so-called “tapering” rule catches more people out than you might expect, especially in the South East, where property prices have risen significantly over the years.

There are ways to manage this, such as gifting during your lifetime or reviewing how your assets are held, but they require careful planning. Timing is also crucial because many tax reliefs depend on surviving seven years after making a gift.

Why is this important?

If you don’t plan ahead, your estate could pay tens of thousands more in tax than necessary. Worse still, your family may not even realise that relief has been lost until after your death, when it’s too late to fix.

The RNRB has made it possible for many families to pass on the family home without triggering a large tax bill. But it only works if the right conditions are met, and those conditions can be surprisingly easy to fall foul of.

If you haven’t updated your Will in the last few years, or if your circumstances have changed, for example, through a marriage, divorce, sale of a property, or the birth of grandchildren, it’s worth reviewing your estate plan with the RNRB in mind.

Likewise, if your estate is close to or above the £2 million mark, consider whether steps can be taken now to reduce the value of your estate before tapering kicks in. Even something as simple as passing on surplus income during your lifetime can help if it’s done correctly.

Final thoughts

Inheritance Tax is often called a voluntary tax, because with the right advice, much of it can be avoided. The Residence Nil-Rate Band is a prime example of a valuable relief that works well, but only if you understand how it applies to your own situation.

A quick review of your Will, your property ownership, and who will inherit can be enough to ensure your family doesn’t miss out on a relief worth £175,000 – or £350,000 as a couple. For most people, that’s a significant amount.

If you’re unsure whether your estate qualifies for the RNRB, or how to make the most of it, get in touch with WSP Solicitors’ Wills, Trusts & Probate team. A short conversation today could save your family a significant amount of tax in the future. You can do so by using the enquiry form on this page. Alternatively, you can call us on 01453 847200.