When both parents have passed away, the tax burden on the family home and remaining assets is finally assessed. Inheritance tax when second parent dies is calculated based on the combined value of the estate, but it usually benefits from a doubled tax-free threshold.

If the first spouse left their entire estate to the survivor, the second parent can claim both their own allowances and the unused portions from the first death, potentially reaching a total tax-free limit of £1 million.

Rules Behind Inheritance Tax When Second Parent Dies

When the second parent dies, the estate is entitled to use both their own tax-free allowances and any unused portions inherited from the first parent.

This stacking of thresholds allows for a combined Nil-Rate Band of £650,000 and a combined Residence Nil-Rate Band of £350,000, totalling a £1 million tax-free limit for estates including a family home left to children.

The Reality of the Final Estate Settlement

In UK estate administration, this is often termed the Postponed Tax effect. While the first parent’s passing is usually covered by spousal exemptions, effectively a grace period, the second death marks the point where the 40% liability becomes a reality for the beneficiaries.

The second death is the Final Settlement moment, where HMRC assesses the total growth of the family’s wealth over decades.

Unlike the first death, which is often a simple transfer of titles, the second death is a rigorous compliance event where every gift made in the last seven years and every business asset owned is scrutinised to determine the final inheritance left for the next generation.

What is Inheritance Tax and why is the Second Death different?

Inheritance Tax (IHT) is a levy on the estate, including property, money, and possessions, of someone who has passed away. In the UK, the standard rate is 40% on anything above the tax-free threshold.

People search for this specific moment because the second death is the point where the 40% tax actually becomes payable, unlike the first death, where assets usually pass tax-free between spouses.

The Purpose and Role of Inheritance Tax

Managed by HM Revenue & Customs (HMRC), these funds contribute directly to the UK’s national budget for public services like the NHS and infrastructure.

While for the individual estate the goal is to leverage legal allowances, the broader system is designed to prevent the unchecked consolidation of multi-generational wealth.

In practice, the second parent’s estate is the only time most families interact with the £1 million threshold. Because the UK system allows for a 100% transfer of unused allowances from the first spouse, the second death is the unique opportunity to unlock a doubled tax-free limit.

Who controls and approves Inheritance Tax in the UK?

HMRC acts as the primary authority, setting collection protocols and managing valuations. This legal oversight is even more critical when assets are held in sole accounts; understanding what happens to bank account when someone dies without a will UK, is vital, as administrative delays here can prevent the timely release of funds needed to settle the tax bill.

The Compliance and Approval Process

• HMRC (The Tax Authority): They must clear the estate before the Probate Registry can fully release assets. Executors must submit an account of the estate to HMRC and pay any tax due before a Grant of Probate is typically issued.
• The Treasury: Ultimately, the Chancellor of the Exchequer determines the thresholds (like the current £325,000 freeze) during Budget announcements, which are then codified into law.

What are the rules and thresholds for the second estate?

The core rule of the 2026 inheritance tax is that thresholds remain frozen. This fiscal drag means that as property prices rise, more estates fall into the taxable bracket. However, the benefit for a second parent’s estate is the ability to claim the Transferable Nil-Rate Band.

Breakdown of Combined Allowances in 2026

Allowance Component	Individual Limit	Combined (Spousal Transfer)	Qualification Note
Nil-Rate Band (NRB)	£325,000	£650,000	Applies to all asset types automatically.
Residence Nil-Rate Band (RNRB)	£175,000	£350,000	Requires a home left to direct descendants.
Total Tax-Free Threshold	£500,000	£1,000,000	Must be claimed via IHT402 and IHT436.

A common pattern is for executors to assume this £1 million is an automatic right. In reality, if the first parent used any of their allowance (for example, by leaving money to a sibling instead of the spouse), only the remaining percentage transfers over.

Furthermore, if the second parent’s estate exceeds £2 million, the RNRB portion begins to taper away at a rate of £1 for every £2 over the limit.

Which documents do I need to claim Inheritance Tax allowances?

To successfully claim the double allowance on the second death, you must provide a paper trail that links back to the first parent’s passing. HMRC requires proof that the first allowance was not already exhausted.

1. Original Death Certificates: For both the first and second parent.
2. Grant of Probate (First Parent): To show how the first estate was distributed.
3. The First Parent’s Will: Critical for proving that assets passed to the surviving spouse (qualifying for 100% transfer).
4. Form IHT400: The main Inheritance Tax account for the current (second) estate.
5. Form IHT402: The specific claim form for the Transferable Nil-Rate Band.
6. Form IHT436: The claim form for the Transferable Residence Nil-Rate Band.
7. Professional Valuations: Written evidence of the home’s value and any significant personal belongings (antiques, cars).
8. Marriage or Civil Partnership Certificate: To prove the legal relationship required for the transfer.

Available Allowances and Capital Gains Advantages for Beneficiaries

The primary financial benefit of a second death is the Uplifted Threshold. Because the UK treats a married couple as a single economic unit for tax purposes, the second parent effectively inherits the tax-free space of the first.

Why the Second Estate Holds More Protective Options

• Double RNRB: Even if the first parent died before the Residence Nil-Rate Band was introduced (pre-2017), the second parent’s estate can still claim a 100% transfer, potentially adding £350,000 of property protection.
• Capital Gains Tax (CGT) Uplift: When the second parent dies, the value of their assets is reset to the market value at the date of death. This means beneficiaries can sell the house or shares immediately with little to no Capital Gains Tax to pay.
• Business Property Relief (BPR): For SME owners, if the business was passed from the first parent to the second, the two-year ownership clock usually continues, allowing for 100% relief on business assets (up to the new 2026 £2.5 million cap).

How do new 2026 and 2027 rules impact planning?

As of 2026, the government has introduced tighter caps on Business Property Relief (BPR) and Agricultural Property Relief (APR).

While previously unlimited, 100% relief is now generally capped at £2.5 million, with any excess taxed at an effective rate of 20%.

Furthermore, a significant change is approaching in April 2027: most unused pension pots will be brought into the inheritance tax net. A common pattern in previous years was to leave pension funds untouched as they were outside the estate.

Beyond property and pensions, executors must account for liquid assets; HMRC warns that savings over £3501 may incur tax if the interest earned during the probate period exceeds the estate’s specific tax-free allowances.

For families dealing with a second death in 2026, it is vital to review these pots now, as they could suddenly push a £900,000 estate over the £1 million threshold in just twelve months’ time.

Final Summary and Next Steps

Inheritance tax when a second parent dies is a final accounting of a family’s history. While the rules provide a generous £1 million path, the benefit is only realised through meticulous record-keeping and formal claims to HMRC. In 2026, with frozen thresholds and new caps on business relief, the margin for error has narrowed.

Executor Action Plan for 2026

• Locate the IHT402 and IHT436 forms.
• Gather the first parent’s probate records and Will.
• Consult an estate professional if the combined assets (including the home) exceed £1.5 million or include a family business.

FAQ

How much is the tax-free limit for a second parent?

The limit is typically £1 million in 2026, comprised of two £325,000 Nil-Rate Bands and two £175,000 Residence Nil-Rate Bands, provided the home goes to direct descendants.

Who actually pays the Inheritance Tax bill?

The tax is paid from the estate’s funds by the executor. Beneficiaries do not usually pay it out of their own pockets, but their inheritance is reduced by the tax amount.

Can I claim the house allowance if it was sold for care fees?

Yes. Under Downsizing Relief, if the second parent sold their home after 8 July 2015 to move into care or a smaller property, the estate can still claim the Residence Nil-Rate Band.

What happens if my parents weren’t married?

The Transferable benefit only applies to legal spouses and civil partners. If they were cohabiting but not married, each estate only receives its own individual £325,000 and £175,000 allowances.

What is the 7-year rule for gifts?

Gifts made by the second parent within 7 years of their death are added back into the estate value. If the gift exceeds the allowance, it is taxed on a sliding scale called Taper Relief.

Why is IHT called a voluntary tax?

Some refer to it this way because, with early enough planning (gifts, trusts, and business reliefs), it is possible to legally reduce a family’s liability to zero.

Does the £1 million limit apply to large estates?

No. If the total estate is worth over £2 million, the Residence Nil-Rate Band (the £350,000 portion) is reduced by £1 for every £2 over that threshold.

Is pension tax changing soon?

Yes. From April 2027, most unused pensions will be included in the IHT calculation. If the second death occurs after this date, the tax bill could be significantly higher.