When dealing with inheritance tax when the second parent dies, many UK families are surprised by how much tax can be avoided with the right knowledge and planning.
Although inheritance tax is often not payable on the first death due to spousal exemptions, the position changes significantly on the second death. Understanding how thresholds, transferable allowances, and reliefs work is essential for executors and beneficiaries to ensure the estate is handled efficiently and tax liabilities are kept to a minimum.
What Happens to Inheritance Tax When the Second Parent Dies in the UK?
In the United Kingdom, inheritance tax (IHT) is not usually triggered upon the first death in a married couple due to the spousal exemption. This exemption ensures that all assets passed from one spouse or civil partner to another are exempt from IHT.
However, the financial implications of IHT become more prominent when the second parent dies. At this point, the entirety of the estate is evaluated for tax purposes.
The value of the estate includes all property, possessions, money, and investments owned at the time of death, minus any liabilities such as outstanding debts or funeral expenses. If the total estate value exceeds the applicable tax-free thresholds, IHT is charged at 40% on the amount above the threshold.
Understanding what allowances apply and how to claim them is vital. The Nil-Rate Band (NRB) and the Residence Nil-Rate Band (RNRB) are two essential components that can significantly reduce the IHT bill if properly claimed.
How Does the Nil-Rate Band Work After the Second Parent’s Death?
Understanding the £325,000 Allowance
The NRB represents the standard tax-free allowance for an individual’s estate. As of the current tax year, this is fixed at £325,000 per individual. If the total estate value falls below this amount, no inheritance tax is due.
Many estates exceed this value, particularly when including property. However, unused NRB from the first parent can be carried forward and applied to the estate of the second parent, effectively doubling the allowance to £650,000.
Transferring Unused Nil-Rate Band from the First Parent
This transfer is particularly beneficial in situations where the entire estate of the first parent was left to the surviving spouse or civil partner. Since assets passed to a spouse are exempt from IHT, the first parent’s NRB remains unused.
This unused portion, whether full or partial, can be claimed by the executors of the second parent’s estate upon death.
The process involves submitting the appropriate documentation to HMRC, including form IHT402, which details the percentage of the NRB used by the first spouse.
The unused percentage is then applied to the NRB in force at the time of the second death, not the rate applicable at the time of the first death. This ensures the estate benefits from the most up-to-date tax thresholds.
Impact on Overall IHT Calculation
Properly transferring the NRB can have a major impact on how much tax, if any, is due. For instance, if a surviving spouse passes away with an estate valued at £600,000 and the full NRB of the first spouse is transferred, the estate falls within the £650,000 limit. As a result, no inheritance tax is due.
Failure to claim this transfer can result in an unnecessary tax liability, which reduces the value passed on to heirs.
Can You Use the Residence Nil-Rate Band to Reduce Inheritance Tax?
Conditions for Using the Residence Nil-Rate Band (RNRB)
Introduced to support families passing property to direct descendants, the RNRB is an additional allowance that can apply on top of the NRB. As of the 2025 tax year, the maximum RNRB available is £175,000 per individual. Like the NRB, this allowance can also be transferred from the first parent to the second, provided the conditions are met.
To qualify for the RNRB, the following criteria must be satisfied:
- The deceased must have owned a qualifying residential property
- The property must be left to direct descendants, such as children or grandchildren
- The estate must be valued under £2 million. If the estate is larger, the RNRB is reduced by £1 for every £2 over this threshold
Where a couple owns a family home and leaves it to their children or grandchildren, the RNRB can be doubled through transfer, increasing the total allowance by £350,000.
Passing the Family Home to Children or Grandchildren
The intention behind the RNRB is to reduce the tax burden on families inheriting the main residence. For example, if a couple owns a home worth £500,000 and this property is passed on to their children, the RNRB allows the estate to avoid tax on a substantial portion of that value.
In cases where the deceased had downsized or sold their home prior to death, they may still be eligible for the RNRB under downsizing provisions, provided assets of equivalent value are passed to direct descendants.
Proper record-keeping and clarity in the will are essential to ensure eligibility and ease of application for the RNRB.
How Much Can a Couple Pass on Tax-Free After Both Parents Die?
When both the NRB and RNRB are fully applied and transferred, a married couple or civil partners can pass on up to £1 million tax-free to their descendants. This figure is a combination of the standard NRB and the RNRB for both individuals.
The following table illustrates how these allowances combine:
| Allowance Type | Individual Allowance | Combined (Couple) |
| Nil-Rate Band (NRB) | £325,000 | £650,000 |
| Residence Nil-Rate Band | £175,000 | £350,000 |
| Total Tax-Free Threshold | £500,000 | £1,000,000 |
This total amount is particularly significant in regions where property prices are high. Without proper planning and claiming of transferable allowances, families could face unnecessary IHT charges despite eligibility for these reliefs.
What Do Executors Need to Do When the Second Parent Dies?
Valuing the Estate Correctly
Executors are legally responsible for assessing the value of the deceased’s estate. This includes compiling a complete list of all assets and liabilities.
Assets to be valued include:
- Property (main residence and additional properties)
- Bank and savings accounts
- Shares and investments
- Personal possessions, such as vehicles, jewellery, and artwork
- Insurance policies not written in trust
- Business assets
Liabilities that can be deducted from the estate value include:
- Mortgages or other secured loans
- Credit card debt
- Funeral expenses
- Unpaid bills and taxes
The final figure, after deductions, determines whether IHT is payable and to what extent.
Claiming Transferable Allowances
Once the estate is valued, the executors must submit the relevant paperwork to HMRC. Claiming the unused NRB and RNRB involves providing:
- A copy of the first parent’s will and death certificate
- Proof of how the estate was distributed
- Completed IHT402 and IHT436 forms
These claims can only be made by executors, not beneficiaries, and must be included with the inheritance tax return. Delays or mistakes in this process can lead to higher tax bills or penalties.
Dealing with HMRC and Paying Inheritance Tax
If the estate value exceeds the combined tax-free allowances, IHT must be paid at 40% on the excess. Payment must be made within six months from the end of the month in which the death occurred.
Executors must:
- Obtain an IHT reference number from HMRC
- Arrange for payment using funds from the estate or other financing methods
- Submit a full IHT return detailing the estate and reliefs claimed
HMRC typically will not grant probate until the tax is paid or suitable arrangements are in place.
How Can Estate Planning Help Reduce Inheritance Tax?
Proactive estate planning can significantly reduce inheritance tax liability. While not all estates will fall above the tax threshold, many do due to rising property prices and accumulated assets. Planning ahead ensures that allowances are properly used and assets are passed on in a tax-efficient manner.
Key planning strategies include:
- Writing a legally valid and up-to-date will
- Using discretionary or lifetime trusts
- Structuring ownership of property and joint assets
- Reviewing asset valuations periodically
- Seeking professional tax and legal advice
Some individuals also consider life insurance policies written in trust as a tool to provide funds for paying IHT, so that beneficiaries are not forced to sell inherited assets.
Do Gifts Help Minimise Inheritance Tax After the Second Parent Dies?
The 7-Year Rule and Exemptions
Gifting assets during one’s lifetime can be an effective way to reduce the value of the taxable estate, provided the individual survives for seven years after the gift is made. This is known as the 7-year rule.
If the individual passes away within this period, taper relief may apply, reducing the IHT liability on a sliding scale based on how long they survived after giving the gift. However, full exemption is only achieved after seven years.
There are also annual exemptions that can be used without affecting the seven-year rule:
- £3,000 annual gift allowance (can be carried over one year)
- £250 small gifts per person (not in addition to the £3,000)
- Wedding gifts (up to £5,000 for a child, £2,500 for a grandchild)
- Regular gifts made from income without affecting lifestyle
Pitfalls of Gifts with Reservation of Benefit
A common mistake occurs when individuals attempt to gift their home but continue living in it without paying market rent. HMRC treats such arrangements as gifts with reservation of benefit, which means the asset remains part of the estate for IHT purposes.
To qualify as a legitimate gift, the donor must fully relinquish ownership and use of the asset. Alternatively, they can pay full market rent for continued use, thereby removing the gift from the estate over time.
What Does Inheritance Tax Look Like in a Real-Life Example?
Understanding the practical implications of inheritance tax when the second parent dies is easier when reviewed through a real-world scenario. Below is a detailed example that illustrates how the Nil-Rate Band (NRB), Residence Nil-Rate Band (RNRB), and transferable allowances work together to reduce or eliminate inheritance tax.
Real-Time Example: Mr and Mrs Clarke
Background: Mr and Mrs Clarke owned a family home in Surrey and had two adult children. Their joint assets included property, savings, and investments.
- Family Home Value: £600,000
- Total Estate Value: £950,000
- Ownership: Joint
- Children: 2 (direct descendants)
- Wills: Each left everything to the surviving spouse, then to the children
- Mr Clarke passed away in 2014; Mrs Clarke passed away in 2025
At the time of Mr Clarke’s death, he left his entire estate to Mrs Clarke, so no inheritance tax was paid, and none of his NRB or RNRB was used.
When Mrs Clarke died in 2025, her estate consisted of:
- Family home: £600,000
- Cash and investments: £350,000
- Liabilities (e.g. funeral, bills): £25,000
- Net estate: £925,000
Step-by-Step Inheritance Tax Calculation
| Component | Amount |
| Gross Estate Value | £950,000 |
| Less: Liabilities | £25,000 |
| Net Estate Value | £925,000 |
Now, we assess the applicable allowances:
- Mrs Clarke’s NRB: £325,000
- Transferred NRB from Mr Clarke: £325,000
- Mrs Clarke’s RNRB: £175,000 (as home passed to children)
- Transferred RNRB from Mr Clarke: £175,000
- Total Tax-Free Allowance: £1,000,000
| Tax-Free Allowance | Amount |
| Nil-Rate Band (Own + Transferred) | £650,000 |
| Residence Nil-Rate Band (Own + Transfer) | £350,000 |
| Total Allowance | £1,000,000 |
Final Result
Mrs Clarke’s net estate was £925,000, which is within the £1,000,000 tax-free threshold. Therefore:
- No inheritance tax was due
- The full estate passed to their children tax-free
- Executors submitted the necessary HMRC forms (IHT402 and IHT436) to claim the transferred allowances
Key Lessons from This Example
- Spousal exemption preserved all allowances for transfer
- By claiming the unused NRB and RNRB, the family avoided a potential £110,000+ IHT bill (40% on £275,000 if allowances weren’t transferred)
- Having an updated will and properly documented estates made the process smoother for executors
- The value of property ownership significantly influenced the tax planning strategy
This example highlights the importance of planning ahead, understanding the allowances available, and making sure executors are aware of their responsibilities when the second parent dies.
Conclusion
Inheritance tax can significantly reduce the value of an estate if allowances are not properly claimed and planning is neglected. Executors and families must understand the transferable nature of the NRB and RNRB, the impact of gifts, and the importance of timely and accurate estate valuation.
With careful planning and professional guidance, families can maximise tax-free allowances and pass on assets more efficiently to the next generation.
FAQs About Inheritance Tax When the Second Parent Dies
What is the current inheritance tax threshold for married couples?
The combined threshold for married couples is up to £1 million, including the standard Nil-Rate Band (£650,000) and the Residence Nil-Rate Band (£350,000), if both are fully utilised and transferred.
Do executors have to apply for the transferable nil-rate band?
Yes, the transferable NRB and RNRB are not automatic. Executors must submit the appropriate forms (IHT402/IHT436) to HMRC when applying for probate.
Are pensions included in the inheritance tax calculation?
Some pensions are not included in the estate if they are in a discretionary trust or written outside the estate. However, pensions in drawdown may be considered.
Can stepchildren inherit the residence nil-rate band?
Yes, as of current HMRC rules, stepchildren and adopted children qualify as direct descendants for the purpose of claiming the RNRB.
What happens if the estate is over £2 million?
If the estate exceeds £2 million, the RNRB is tapered down by £1 for every £2 over the threshold. Once the estate exceeds £2.35 million, no RNRB is available.
Can life insurance help pay inheritance tax?
Yes, a life insurance policy written in trust can provide a tax-free lump sum outside the estate to cover inheritance tax liabilities, easing the burden on beneficiaries.
Is probate always required when the second parent dies?
Probate is usually required unless the estate is very small or held entirely in joint accounts. It is necessary for valuing the estate, claiming allowances, and distributing assets.
