Do You Pay Inheritance Tax When Second Parent Dies?

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Last Updated on: 31st July 2025, 10:01 am

Have you recently experienced the loss of your second parent and are now left wondering what happens with inheritance tax? It’s a common concern among families across the UK.

Dealing with grief is already overwhelming, and adding tax responsibilities to the mix can feel incredibly stressful. That’s why understanding how inheritance tax (IHT) works when the second parent dies is crucial, especially for children or relatives taking over the estate.

Inheritance tax applies differently when both parents have passed. While the first parent’s death often involves little or no tax due to the spousal exemption, things become more complex when the second parent dies.

You’ll need to account for the total value of the estate, unused tax allowances, probate requirements, and possibly taxes on gifts made years before.

This guide will help you confidently manage the tax implications, avoid unnecessary penalties, and understand your next steps clearly and calmly.

What Is Inheritance Tax?

Inheritance tax is a tax applied to the estate of someone who has passed away. An estate includes property, savings, investments, and personal possessions.

The tax is only applied when the total value of the estate exceeds certain thresholds. If the estate falls below those limits, no tax is owed.

In the UK, every individual has a tax-free threshold known as the nil-rate band, currently set at £325,000. If the estate is worth more than this amount, inheritance tax of 40% is applied to anything above the threshold.

You can also apply a residence nil-rate band of £175,000 if the family home is left to children or grandchildren. This means that an individual could potentially pass on up to £500,000 tax-free.

Key points:

Standard nil-rate band: £325,000
Residence nil-rate band: £175,000
IHT rate: 40% (reduced to 36% if 10% is left to charity)

Inheritance tax is due within six months of death and is paid to HMRC.

How Does The Death Of The First Parent Affect Inheritance Tax?

When the first parent dies, their estate often doesn’t trigger inheritance tax due to the spousal exemption. Assets passed between legally married spouses or civil partners are exempt from IHT, regardless of value.

This means that the entire estate of the first parent can be transferred to the surviving spouse tax-free. In many cases, there is no need to pay tax or even apply for probate at this point, especially if most assets were held jointly.

What’s especially important is the ability to transfer any unused inheritance tax allowance from the first parent to the second. If the first parent didn’t use their full nil-rate band or residence nil-rate band, these can be carried over, effectively doubling the second parent’s tax-free threshold.

Summary points:

Spousal transfers are IHT-free
No tax on jointly owned assets passing to the surviving spouse
Unused tax allowances from the first parent can be claimed on the second death

This allows families to protect a larger portion of the estate from tax when the second parent dies.

What Changes When The Second Parent Dies?

After the death of the second parent, the rules surrounding inheritance tax change significantly. The surviving children or other beneficiaries are now liable for any IHT due, and the estate must be fully valued, reported, and possibly taxed before it can be distributed.

At this point, there is no spousal exemption to rely on. The full estate value must be considered, including property, personal belongings, savings, and any gifts made in the past seven years.

Inheritance Tax Implications For Children And Beneficiaries

Once both parents have passed, any assets left to children or other relatives may be subject to IHT if the estate’s total value exceeds the combined thresholds.

However, you can apply unused allowances from the first parent to increase the second parent’s nil-rate band and residence nil-rate band.

A potential combined threshold:

Nil-rate band: £325,000 x 2 = £650,000
Residence nil-rate band: £175,000 x 2 = £350,000
Total: Up to £1 million can be passed tax-free

Probate Requirement And Valuation Of The Estate

Probate becomes a legal necessity in most cases after the second parent’s death. Before probate is granted, the executor must value all assets in the estate.

This includes:

The market value of any property
Savings and investments
Chattels and personal possessions

All liabilities and debts must also be subtracted to arrive at the net estate value.

Claiming Transferred Allowances From First Parent

If the first parent’s allowances were unused or partially used, they can be transferred to the second parent’s estate. To do this, the executor needs to complete the appropriate HMRC forms, usually IHT400 for complex estates. Accurate records of the first parent’s estate are needed to support the claim.

Here is a breakdown of how combined allowances work:

Allowance Type	Individual Value	Combined Total
Nil-Rate Band	£325,000	£650,000
Residence Nil-Rate Band	£175,000	£350,000
Total Threshold	£500,000	£1,000,000

This potential tax-free amount greatly reduces inheritance tax on most middle-income estates.

What Counts As The Estate For Inheritance Tax Purposes?

To calculate inheritance tax correctly, you must know what assets and liabilities are included in the estate. This helps you determine whether the estate exceeds the nil-rate thresholds and what tax might be due.

Assets Included In The Estate

The estate includes almost everything the deceased owned:

The family home or other properties
Bank accounts and savings
Stocks, shares, and pensions
Personal possessions such as jewellery, cars, art, or collectibles

Even gifts made in the seven years before death may count towards the estate total depending on their value and timing.

Deductible Debts And Liabilities

You can deduct specific debts and costs from the estate value before calculating inheritance tax.

These include:

Outstanding mortgages or loans
Funeral expenses
Credit card bills
Utility bills and unpaid taxes

This can reduce the overall taxable estate and potentially lower or eliminate the inheritance tax liability.

Gifts Within 7 Years And The 7-Year Rule

If the deceased gave large gifts within seven years before their death, these may be subject to inheritance tax unless they fall within exemptions. The earlier the gift was made, the lower the tax rate, thanks to taper relief.

Here’s how the sliding scale works:

Time Between Gift and Death	Tax Rate
0–3 years	40%
3–4 years	32%
4–5 years	24%
5–6 years	16%
6–7 years	8%
7+ years	0%

Accurate records of gifts and values should be kept to avoid confusion during the estate administration.

What Are The Allowances And Exemptions You Can Use?

There are several allowances and exemptions that can help reduce or eliminate inheritance tax liability. Understanding and applying these can make a significant financial difference.

The annual exemption allows up to £3,000 in gifts per tax year without affecting your estate’s value. If unused, it can be carried over to the following year. You can also give small gifts of up to £250 per person, provided no other exemptions are used for the same individual.

Wedding or civil partnership gifts are exempt, up to £5,000 for children and lower amounts for others. Additionally, regular payments made from surplus income, such as helping with rent or school fees, are exempt as long as they don’t affect your standard of living.

Business Relief and Agricultural Relief may also apply, reducing tax on qualifying assets like family businesses or farms. Using these exemptions efficiently is one of the best ways to minimise inheritance tax legally.

How Is Inheritance Tax Paid After The Second Parent’s Death?

Inheritance tax must be paid before the estate can be distributed. The executor of the will is responsible for handling this and must do so within six months of the date of death to avoid interest charges.

There are two key forms:

IHT205: For simpler estates with no tax due
IHT400: For larger or more complex estates

In cases where the estate includes illiquid assets, such as property, IHT can be paid in instalments over ten years, although interest will still accrue. This gives beneficiaries time to sell assets or arrange funding without rushing decisions.

The estate usually pays the tax from available funds. If there are no liquid funds, beneficiaries may have to cover the tax themselves and be reimbursed once assets are sold. Clear records and prompt filing help ensure the process goes smoothly and without penalties.

What Can You Do To Reduce Inheritance Tax Liability?

Reducing inheritance tax doesn’t necessarily require complicated financial schemes. Often, it’s about applying existing allowances properly and planning ahead. For example, making gifts during your lifetime that qualify for exemptions or taper relief can significantly reduce the size of your estate.

If the estate includes a family home being passed to direct descendants, make sure the residence nil-rate band is applied. Ensure all business or agricultural assets are evaluated to determine if they qualify for relief.

Simple steps include:

Making regular gifts from surplus income
Using full nil-rate and residence nil-rate allowances
Recording all gifts with dates and values
Seeking professional advice for high-value or complex estates

Even modest estates can benefit from strategic planning, and doing so in advance makes everything easier for your loved ones when the time comes.

What Are Common Mistakes To Avoid After The Second Parent Dies?

Even with the best intentions, errors can lead to delays or unnecessary tax bills. One of the most common mistakes is failing to claim the first parent’s unused allowances. This can result in the estate missing out on up to £350,000 of tax-free threshold.

Other mistakes include:

Misvaluing property or underreporting assets
Overlooking debts or funeral costs as deductible expenses
Missing the six-month HMRC deadline to pay IHT
Not keeping records of gifts or financial transactions

Avoiding these mistakes starts with organisation. Collect all relevant documents, get professional valuations where needed, and keep detailed records of any previous gifts or transfers.

Consulting a probate specialist can also help ensure nothing is missed, especially in more complex estates.

How Do You Prepare For Inheritance Tax If One Parent Is Still Alive?

Planning ahead can protect your family’s wealth and make the estate administration process far easier in the future. If one parent is still living, now is the time to explore inheritance tax planning strategies.

Start by understanding what assets are included in the estate and how current allowances apply. Encourage the use of lifetime gifts and consider setting up trusts or life insurance policies to cover potential tax liabilities.

Key preparation tips:

Review and update wills regularly
Use gift allowances each tax year
Consider regular gifts from surplus income
Keep records of all gifts and financial assistance

Having open conversations within the family about estate planning ensures that everyone is prepared and reduces the chances of confusion or conflict later on. Seeking guidance from a solicitor or tax adviser now can make a meaningful difference later.

What Happens To UK Inheritance Tax If Parents Lived Abroad?

Inheritance tax rules differ if your parents lived abroad or had overseas assets. In general, HMRC applies UK inheritance tax only to assets based in the UK for someone deemed non-domiciled.

To determine domicile, HMRC looks at where your parent considered their permanent home and how many years they lived in the UK.

If they lived in the UK for 15 of the last 20 years or had a UK home within the last three years of life, they may still be treated as UK domiciled.

Things to consider:

Only UK assets like property and bank accounts are taxed for non-domiciled individuals
Foreign pensions, currency accounts, and non-UK investments may be excluded
Double-taxation treaties may help avoid being taxed twice in different countries

If your parents’ estate involves multiple countries, working with a cross-border tax adviser is strongly recommended to avoid legal and financial complications.

Conclusion

Understanding what happens to inheritance tax when the second parent dies is vital for effective estate management and protecting family wealth.

The absence of a spousal exemption means that everything in the estate must be reviewed, valued, and taxed appropriately.

By applying combined allowances, identifying exemptions, and keeping thorough records, you can often minimise the tax burden and streamline the probate process.

Recognising common pitfalls and preparing early, especially if one parent is still alive, will provide peace of mind for the future.

While the process can be complex, the right knowledge and advice make it manageable. With careful planning and proper documentation, you can fulfil your responsibilities and safeguard the estate’s value for the next generation.

FAQs

Can You Delay Paying Inheritance Tax If the Estate Is Tied Up in Property?

Yes, HMRC allows inheritance tax to be paid in annual instalments over ten years if the estate includes assets like property that are not easily sold. However, interest will apply to the outstanding balance.

What Happens If the Will Is Contested During Probate?

If the will is contested, probate may be delayed. Inheritance tax is still due within six months of the death, so arrangements should be made to pay HMRC on time to avoid penalties and interest.

Are Gifts to Grandchildren Tax-Free After the Second Parent Dies?

Gifts to grandchildren may be subject to inheritance tax if they exceed exemption limits or were made within seven years of death. However, you can use specific exemptions like the £2,500 wedding gift allowance or small gift exemptions.

Do You Have To Pay Inheritance Tax On Life Insurance?

Life insurance is generally not taxed if written in trust. If not, the payout is included in the estate’s value and may be subject to IHT if the total exceeds the tax-free threshold.

What Is a Deed of Variation and Can It Reduce Inheritance Tax?

A deed of variation allows beneficiaries to alter a will after death, potentially redirecting assets to reduce inheritance tax liability. It must be done within two years of the death and agreed by all affected parties.

Can Charitable Donations Be Used to Lower the Tax Rate?

Yes, if 10% or more of the net estate is left to charity, the inheritance tax rate on the remaining taxable estate can be reduced from 40% to 36%. This can significantly lower the overall tax bill.

Is It Necessary To Hire a Solicitor for Inheritance Tax Matters?

It is not legally required, but hiring a solicitor or probate expert is highly recommended for larger or complex estates. They can ensure that all exemptions are claimed and forms are completed accurately, avoiding delays or penalties.