Residence nil rate band ― trusts, downsizing and lifetime gifts

Produced by Tolley
Residence nil rate band ― trusts, downsizing and lifetime gifts

The following Trusts and Inheritance Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Residence nil rate band ― trusts, downsizing and lifetime gifts
  • Further aspects of the residence nil rate band (RNRB)
  • Settled property
  • Downsizing
  • Lifetime gifts and gifts with reservations (GWR)
  • Practical considerations and planning points
  • Making a claim

Further aspects of the residence nil rate band (RNRB)

The RNRB is an addition to the basic nil rate band (NRB), which further reduces the inheritance tax payable on death. The principal provisions are described in the Residence nil rate band ― main provisions guidance note. This guidance note looks at some of the more advanced aspects.

Settled property

There are limited circumstances in which property passing out of or into a trust qualifies for the RNRB.

Where a person (D) has a qualifying interest in possession (QIIP) in settled property, it forms part of his estate on death. If the QIIP includes a residence, it will be eligible for the RNRB if it passes absolutely to a lineal descendant of D.

The RNRB will not apply if it passes to a succeeding interest in possession. This is because the subsequent interest in possession will not be a QIIP so the beneficiary will not be ‘beneficially entitled’. However, it is thought that the RNRB would be available if the succeeding interest in possession is a disabled person’s interest (DPI) because that is a QIIP.

See Example 1.

In situations where property is passing from an absolute owner into trust, ie the property is settled by Will, the RNRB will be available if it is to be held in trust for a lineal descendant as beneficiary of:

  1. an immediate post-death interest (IPDI)

  2. DPI

  3. a bereaved minor’s trust (BMT), or

  4. an age 18–25 trust

IHTA 1984, s 8J(3)–(4)

It will not qualify if it passes to a discretionary trust, even if all the beneficiaries of the discretionary trust are lineal descendants.

Therefore, it will qualify in most cases where the beneficiary is treated as the absolute owner. Notably, it will not qualify where grandparents leave the value of their property to grandchildren under an age contingent interest or with any discretion attached to the ultimate distribution.


The initial provisions in FA 2015 were augmented in FA 2016 with measures to compensate for downsizing. It applies to

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