Inheritance tax when the second parent dies often catches families out. Here is how the allowances and the £1 million couple's threshold work, who pays, when it is due, and how to reduce the bill.
For many families, inheritance tax never really bites until the second parent dies. The first death usually passes tax-free between spouses, so it is the second death, when the family home and a lifetime of savings pass to the children, that triggers the bill. It catches a lot of people off guard. This guide explains exactly how inheritance tax works when the second parent dies, how the allowances combine into a potential £1 million tax-free threshold, who pays and when, and the legitimate ways to reduce or avoid the bill. The figures are for the 2026/27 tax year.
Often, yes, this is the point at which inheritance tax becomes payable. Inheritance tax (IHT) is charged at 40% on the value of an estate above the available tax-free allowance. When the first parent dies and leaves everything to their spouse or civil partner, it is normally exempt, so no tax is due. But when the second parent dies and the estate passes to the children, there is no spouse exemption to shelter it. If the combined estate is worth more than the allowances available, the part above the threshold is taxed at 40%. Whether any tax is actually due comes down to the size of the estate and how much allowance the surviving parent's estate can claim, which is what the rest of this guide unpacks.
Transfers between spouses and civil partners are exempt from inheritance tax. So when the first parent dies and leaves their share of everything to the surviving partner, nothing is taxed at that point. Crucially, the first parent's unused tax-free allowances are not lost. They can be passed to the survivor and used on the second death, which is what makes the larger combined threshold possible. The catch, covered below, is that this transfer is not automatic and must be claimed.
Every person has two potential inheritance tax allowances:
Both are frozen at these levels until April 2031, which means rising house prices are quietly pulling more families into paying, an effect known as fiscal drag. So a single person leaving their home to their children can pass on up to £500,000 tax-free (£325,000 plus £175,000).
This is the heart of the matter for the second death. Because the first parent's unused allowances transfer to the survivor, the surviving parent's estate can potentially use two of each:
Added together, that is up to £1,000,000 that can pass to the children free of inheritance tax on the second death. This is the widely quoted "£1 million allowance" for couples. It is not automatic, though. It only reaches the full £1 million if the home (or its value) goes to direct descendants, the estate is not large enough to lose the residence band to the taper, and, importantly, the executors actively claim the transferred allowances from HMRC. This transfer applies even if the first parent died years ago when the allowance was lower, because it is worked out as a percentage of the unused band applied to today's figures.
As a beneficiary, you do not personally pay inheritance tax, and you can inherit any amount. The tax is paid by the estate before anything is distributed. So the practical question is how much of your parents' estate escapes the 40% charge. For a married couple passing their home to their children, that is up to £1 million. Anything above the available allowance is taxed at 40% out of the estate, reducing what is left to inherit. Below the threshold, the children inherit the lot with no inheritance tax at all.
You can get a quick estimate in four steps. A dedicated inheritance tax calculator makes this easier, but the method is straightforward:
For example, an £1,150,000 estate with the full £1,000,000 allowance leaves £150,000 taxable, and 40% of that is £60,000 of inheritance tax. The decision tree below shows the logic at a glance.
Numbers make this clearer:
The residence nil-rate band is generous but conditional. It only applies if a home you have lived in passes to direct descendants. Leave the house to a sibling or a friend and that £175,000 (or £350,000 transferred) is lost. There is also a trap for larger estates: the residence band is reduced by £1 for every £2 the estate is worth above £2,000,000. For a couple with the full £350,000 property allowance, it tapers away completely once the estate reaches around £2,700,000. If you have downsized or sold the home before death, a "downsizing addition" can sometimes preserve the allowance, which is worth asking a professional about. You can read HMRC's rules on passing on a home.
The estate pays the tax, not the beneficiaries. In practice the executors or personal representatives handle it, valuing the estate, working out the tax, claiming the transferred allowances and paying HMRC. Inheritance tax is generally due by the end of the sixth month after the month of death. So if a parent dies in March, the bill is due by the end of September, and interest is charged on anything paid late. There is a chicken-and-egg problem here: you usually cannot get probate, and therefore cannot access the estate's money, until the tax is paid or arranged. For property and some other assets, the tax can be paid in ten annual instalments, though interest applies to the outstanding balance. The full official overview is on GOV.UK.
You cannot make a large estate vanish, but there are well-established, legitimate ways to bring the bill down, ideally started while the surviving parent is still alive. The main levers are giving money away early, using the allowances fully, protecting the home for the children, and in some cases using trusts or life insurance. The next sections cover the most useful ones.
Giving money away during your lifetime is one of the most effective tools, thanks to the seven-year rule. Most gifts to individuals are "potentially exempt transfers", which means they fall completely out of your estate for inheritance tax if you live for seven years after making them. Die within seven years and the gift counts back into your estate, though taper relief can reduce the tax on gifts made between three and seven years before death. On top of that, several gifts are immediately exempt: a £3,000 annual exemption each tax year (which can be carried forward one year for £6,000), small gifts of up to £250 per person, certain wedding gifts, and regular gifts made out of surplus income without affecting your standard of living. Used consistently over years, these allowances move meaningful sums out of an estate.
This is one of the most common questions, and one of the easiest to get wrong. Parents can give their home to their children, but if they continue living in it rent-free, HMRC treats it as a "gift with reservation of benefit", and the house stays in the estate for inheritance tax regardless of the seven-year rule. To make a genuine gift, the parents would generally have to move out, or pay full market rent to the children, which brings its own income tax and other consequences. Gifting the family home is rarely the simple fix it appears to be, and it is exactly the kind of move to take professional advice on before doing anything.
Beyond gifting, families use a few other approaches. Trusts can move assets out of an estate, but they are complex and can trigger their own charges, so they are not a casual DIY option. A life insurance policy written in trust is a popular way to cover an expected inheritance tax bill: the payout sits outside the estate and gives the family ready cash to pay HMRC without having to sell the home in a hurry, and it is worth knowing you can hold more than one life insurance policy for different purposes. Leaving at least 10% of the net estate to charity also cuts the inheritance tax rate on the rest from 40% to 36%. And the simplest option of all is for the surviving parent to spend and enjoy their money, since anything spent is no longer in the estate.
Yes, to a degree, which surprises many people. Within two years of a death, the beneficiaries can use a "deed of variation" to change who inherits what. This can be used to redirect assets in a more tax-efficient way, for example passing some of an inheritance straight to grandchildren or to charity, which can reduce the overall inheritance tax. It will not rewrite the allowances, but it is a valuable second chance for families who realise after the event that the estate was not arranged efficiently.
Inheritance tax is changing, and the direction of travel is more estates paying more. The key points for families planning ahead are that the nil-rate band and residence nil-rate band are frozen until April 2031, so fiscal drag will continue. From April 2026, the 100% relief on qualifying business and agricultural assets is capped at the first £1 million combined, with 50% relief above that, though this £1 million allowance was made transferable between spouses at the Autumn 2025 Budget. Most significantly for ordinary families, from April 2027 most unused pension funds and death benefits will be brought into the estate for inheritance tax, ending the long-standing position where pensions sat outside it. If your retirement plan assumed your pension would pass on tax-free, it is worth revisiting.
A few errors come up again and again. The biggest is assuming the transferred allowance is automatic, when in fact the executors must claim it from HMRC, and missing this can cost hundreds of thousands. Others include assuming the full £1 million applies when the home is not actually going to direct descendants, overlooking the £2 million taper on larger estates, gifting the home but carrying on living in it for free, leaving planning until the surviving parent is seriously ill, and failing to keep records of lifetime gifts, which leaves executors guessing. Most of these are avoidable with a little forethought.
If you are helping a parent plan, or sorting an estate, this checklist covers the essentials:
Inheritance tax when the second parent dies is one of those subjects that feels daunting but follows clear rules: combine the allowances, check the home is going to the children, claim everything you are entitled to, and plan early to reduce what is left exposed. This guide is general information and not financial or legal advice, and inheritance tax is complex and personal, so for your own situation speak to a qualified estate planning solicitor or financial adviser.
Often, yes. The first death is usually tax-free because transfers between spouses are exempt, but on the second death the estate passes to the children with no spouse exemption. If it is worth more than the available allowance, the excess is taxed at 40%.
For a married couple passing their home to their children, up to £1,000,000 can pass free of inheritance tax, made up of two £325,000 nil-rate bands and two £175,000 residence nil-rate bands. Anything above the available allowance is taxed at 40%.
Each parent has a £325,000 nil-rate band plus a £175,000 residence nil-rate band when the home goes to direct descendants. The first parent's unused allowances transfer to the survivor, giving up to £650,000 plus £350,000, which is £1,000,000 on the second death.
Legitimate options include giving money away at least seven years before death, using annual gift exemptions, leaving the home to direct descendants to claim the residence band, holding life insurance in trust to cover the bill, and leaving 10% to charity to cut the rate to 36%. Take advice for trusts.
The estate pays it, not the beneficiaries. The executors or personal representatives value the estate, work out and claim the allowances, and pay HMRC out of the estate before the remainder is distributed to those who inherit.
It is generally due by the end of the sixth month after the month of death, with interest charged after that. Probate usually cannot be granted until the tax is paid or arranged, though tax on property can be spread over ten annual instalments.
No. The first parent's unused nil-rate band and residence nil-rate band must be actively claimed by the executors when the second parent dies. Assuming it happens automatically is a common and costly mistake.