Inheritance Tax When the Second Parent Dies: What Families Need to Know in 2025

For many families in the UK, the biggest inheritance tax bill doesn’t arise after the first parent dies, but after the second.

That’s when the estate is typically passed to children or other beneficiaries, triggering inheritance tax if not planned correctly.

So if you’re wondering:

“What happens to inheritance tax when the second parent dies?”

This guide is for you. At Belgravia Capital Wealth Management, we specialise in helping families prepare for this crucial moment.

Below, we explain what rules apply, what tax may be due, and how to reduce your family’s IHT liability when the surviving spouse passes away.

Understanding the Basics: How Inheritance Tax Works Between Spouses

Inheritance tax (IHT) in the UK is charged at 40% on estates worth more than the available tax-free allowances.

But transfers between spouses and civil partners are completely tax-free, provided both are UK-domiciled.

When the first parent dies:

• The estate typically passes tax-free to the surviving spouse

• Any unused inheritance tax allowances can be transferred

• No inheritance tax is usually paid at this stage

It’s only when the second parent dies and the estate is passed to children or other beneficiaries that IHT becomes an issue - often a major one.

What Allowances Are Available When the Second Parent Dies?

If properly planned, the estate of the second parent can benefit from up to £1 million in tax-free inheritance allowances, thanks to transferable allowances.

1. Nil-Rate Band (NRB) – £325,000 per person

• Every individual has a standard inheritance tax allowance of £325,000

• If unused by the first spouse, this can be transferred to the second spouse

• This gives the estate of the second parent up to £650,000 in NRB

2. Residence Nil-Rate Band (RNRB) – £175,000 per person

• If the main home is passed to direct descendants (e.g. children or grandchildren), an extra £175,000 per person is available

• This too can be transferred between spouses

• Together, this gives another £350,000 in tax-free threshold

Total Combined Tax-Free Threshold: £1 Million

• £325,000 (NRB) x 2 = £650,000

• £175,000 (RNRB) x 2 = £350,000

• £1,000,000 total tax-free estate

But to claim the full £1 million, certain conditions must be met, especially regarding the family home and beneficiaries.

When Does Inheritance Tax Become Payable on the Second Death?

Inheritance tax is payable if:

• The total estate value exceeds the available combined allowances

• The main residence is not left to direct descendants (disqualifying the RNRB)

• The estate exceeds £2 million, causing tapering of the residence nil-rate band

• Assets like businesses, AIM shares, or farmland don’t qualify for relief under new rules

• The surviving spouse did not inherit everything from the first spouse (meaning some allowances may not be transferable)

Example:

• Mr and Mrs Taylor own a home worth £600,000 and investments worth £500,000

• Mr Taylor dies in 2021 and leaves everything to his wife

• Mrs Taylor dies in 2025, leaving her estate to two children

Her estate is worth: £1.1 million

Available allowances:

• £325,000 + £325,000 = £650,000 (NRB)

• £175,000 + £175,000 = £350,000 (RNRB)

• Total = £1,000,000

Taxable estate = £1.1m – £1m = £100,000

IHT = £100,000 x 40% = £40,000

With proper planning, this tax could potentially be reduced or eliminated.

What Happens If IHT Allowances Weren’t Transferred After the First Death?

Don’t panic, allowances are still transferable even if the first spouse died many years ago.

As long as the second parent’s executors provide:

• A copy of the first spouse’s death certificate

• A copy of the grant of probate or will

• Confirmation of how much of the NRB and RNRB was used at the time

…then HMRC will accept a claim to transfer the unused allowances. This claim must be made within 2 years of the second death.

What If the Estate Exceeds £2 Million? The RNRB Trap

If the estate is worth more than £2 million, the residence nil-rate band begins to taper.

• For every £2 over £2 million, £1 of RNRB is lost

• At £2.35 million, the entire RNRB is wiped out

This means high-value estates may lose £350,000 in exemptions, resulting in a significantly higher IHT bill.

Proper planning, including gifting, trusts, and lifetime transfers, is essential for families in this bracket.

Other Factors That Affect Inheritance Tax When the Second Parent Dies

Gifts Made Within 7 Years of Death

Any gifts made by the second parent within the seven years before their death may be added back into the estate and taxed, depending on the value.

Business and Agricultural Assets

From April 2026, Business Property Relief and Agricultural Property Relief will be capped at £1 million per person, reducing tax protection for family businesses and farms.

Pensions

From April 2027, unused pension pots will be included in the estate for inheritance tax purposes (previously exempt).

How to Reduce Inheritance Tax After the Second Death

• Ensure wills are structured properly to pass assets in the most tax-efficient way

• Claim all unused allowances from the first spouse

• Use lifetime gifts and the 7-year rule to reduce the estate value

• Consider setting up life insurance in trust to cover the IHT bill

• Use trusts for children or grandchildren to control the timing and value of distributions

• Review property ownership to ensure maximum use of the RNRB

How Belgravia Capital Wealth Management Can Help with Inheritance Tax

We support families by:

• Calculating IHT exposure after the second parent’s death

• Helping executors claim transferable allowances correctly

• Structuring gifts, insurance, and trusts to reduce tax

• Preparing for the 2026 and 2027 IHT changes

• Coordinating with legal and tax professionals to deliver a smooth estate transition

Whether you’re planning in advance or dealing with an estate now, we’ll ensure you don’t pay more tax than necessary.

Conclusion: Inheritance Tax After the Second Parent Dies

Inheritance tax becomes a real risk after the second parent passes away, but with careful planning, it can often be minimised or avoided entirely.

Understanding and claiming the right allowances, using the residence nil-rate band properly, and staying ahead of upcoming changes are the keys to protecting your family’s wealth.

Contact us at contact@belgravia-capital.co.uk for expert support in managing inheritance tax when the second parent dies.