Property Aspects of Inheritance Tax

20th September 2026

Property related topics surrounding Making Tax Digital for Income Tax (MTD for IT) seem to be a trending conversation currently. However, recent developments and upcoming changes to Inheritance Tax (IHT) mean that advisory and planning in this area has increased significantly recently.

Residence Nil Rate Band (RNRB)

The RNRB is an IHT allowance valued at £175,000 and was introduced in 2017/18. It is provided in addition to the Nil Rate band (NRB) of £325,000. However, the reliefs serve different purposes. The Nil Rate Band (NRB) can be used to reduce the taxable Estate value of any asset. However, the RNRB is strictly to be used against residential property.

There certain conditions to be satisfied in order for the allowance to apply are:

The residential property must, at some point, have been the deceased’s main residence.
The residence must pass to a lineal descendant, such as children, grandchildren or great-grandchildren. This includes spouses/civil partners of such descendants. The description of children also includes stepchildren, adopted children and foster children.

Where the net value of an individual’s Estate exceeds £2,000,000, the RNRB is tapered away by £1 for every £2 of value over £2,000,000. This means that the full RNRB is restricted where the net Estate value is £2,350,000 or more.

What is the net Estate value?

The net Estate value is the value after the deduction of liabilities but before the deduction of reliefs such as Agricultural/Business Relief.

Unused RNRB can be transferred to the surviving spouse/civil partner, in the same way that the NRB can.

Downsizing Relief

A provision exists to ensure that an Estate is not prevented from benefiting from the RNRB where an individual downsizes to a lower value home, sells the property to move into care, or gives away the qualifying residence. This provision is known as the “Downsizing Addition” and was introduced on 8^th July 2015. As with all areas of taxation, IHT can be complex, so we would advise seeking professional advice.