When the second parent passes away, the family often faces its largest inheritance tax bill, but careful planning can make a real difference to what your loved ones keep.
Why the second death is the moment that matters most
Inheritance tax when the second parent dies is the point at which most families first feel the full weight of the tax. When a husband, wife or civil partner dies, assets passing directly to their surviving spouse are generally exempt from inheritance tax altogether. That is good news in the short term, but it means the tax is simply deferred rather than eliminated. Often the surviving parent inherits everything, the estate grows, and when they die the whole accumulated estate is assessed at once.
For many families, particularly those who own a home in a part of the country where property values have risen considerably over the years, this can result in a bill running into tens of thousands of pounds. Understanding how the available allowances work is the first step towards making sure your family is not caught out.
How unused allowances transfer between spouses
Every individual has a nil-rate band, which is the amount they can leave free of inheritance tax. If a spouse or civil partner dies and does not use all of their nil-rate band (because, for example, they left everything to the surviving spouse and no tax was due), that unused portion does not disappear. It transfers to the surviving spouse and can be used on the second death.
This means the surviving parent's estate can potentially benefit from two nil-rate bands when they die. Each person has a £325,000 nil-rate band and, where a home passes to direct descendants, up to £175,000 of residence nil-rate band, so a couple can pass on up to £1 million between them. These thresholds are frozen until April 2031. Executors must claim the unused allowances from the first death. The same principle applies to the residence nil-rate band, an additional allowance available where a home is passed to direct descendants such as children or grandchildren. If the first parent to die did not use their residence nil-rate band, that too can transfer to the survivor.
In practical terms, this can significantly increase the amount that passes to the next generation free of tax. However, the allowances are not automatic in every case, and the rules around them are more detailed than they first appear. Tapering rules can reduce the residence nil-rate band for larger estates, and the way assets were held or gifted in the past can affect what is available. That is why it matters to look at the full picture rather than assume the maximum allowances will apply.
What this means for the family home
For most families, the home is the most valuable asset, and it is often at the centre of inheritance tax planning. The residence nil-rate band was introduced specifically to help families pass the family home to the next generation with less tax to pay, but it only applies in certain circumstances.
The property must have been the deceased's home at some point, and it must pass to direct descendants, which includes children, stepchildren, adopted and foster children, grandchildren, and their spouses or civil partners. If the estate is worth more than £2 million, the residence nil-rate band is reduced by £1 for every £2 over that figure. Families with larger estates sometimes find that the allowance available to them is smaller than they expected.
It is also worth remembering that if a surviving parent downsizes or sells the family home before they die, there are rules that may still allow some or all of the residence nil-rate band to be claimed, provided certain conditions are met. This area of the law rewards early thought and proper record-keeping, and our team can help you understand what applies to your family's circumstances.
Planning ahead while the surviving parent is still with us
The period after the first parent dies and before the second parent dies is often the most valuable window for reducing the eventual inheritance tax bill. There are several steps we regularly help families consider during this time.
- Reviewing how assets are held. We look at whether assets are in joint names, in the surviving parent's sole name or held in other structures, and whether any changes would be beneficial.
- Gifting during lifetime. Gifts made during a person's lifetime can fall outside the estate if the person lives for seven years afterwards. Giving something away but still benefiting from it, such as living rent-free in a home given to your children, does not work. We help families think through what is affordable to give away and how to do it properly.
- Updating wills. The surviving parent's will almost certainly needs reviewing. A will drafted years ago may not reflect current allowances, the current value of the estate or the family's wishes today.
- Trusts and other structures. In some cases, placing assets into a trust can be an effective part of a wider plan. We explain the options clearly so families can make informed choices without feeling pressured into anything complex they do not fully understand.
None of these steps involves a one-size-fits-all answer. We take time to understand each family's situation before making any recommendations.
How we handle the estate after the second parent dies
When the second parent does pass away, there is both an administrative process and a tax position to manage. Our probate team handles both together, so nothing falls through the gaps.
We start by gathering full details of the estate, including property, savings, investments, pensions, personal belongings and any gifts made in recent years. From 6 April 2027, most unused pension funds and pension death benefits will count towards the estate for inheritance tax, and the executors will be responsible for the tax on them, so pensions now need to be part of any plan. We then work out the inheritance tax position, taking into account any unused nil-rate band and residence nil-rate band from the first death and any other reliefs or exemptions that apply. Where inheritance tax is due, we advise on the most practical way to fund the payment, since HMRC generally expects the tax to be paid before probate is granted.
Once the inheritance tax account has gone to HMRC and any tax due before the grant has been paid, we apply for the grant of probate, which gives us the legal authority to collect in assets, pay any outstanding debts and distribute what remains to the beneficiaries. We keep the family informed at every stage and explain what is happening in plain terms, without unnecessary jargon.
We also check whether a deed of variation might benefit the beneficiaries. This allows the people who inherit to redirect some or all of their inheritance within two years of the death, sometimes in a way that reduces the overall tax burden or better suits the family's needs.
Talk to us about your family's situation
Inheritance tax when the second parent dies does not have to come as a shock. With the right planning in place, and the right support when the time comes, families can often reduce what is owed and avoid unnecessary stress during an already difficult period.
At Brewer Wallace, our wills, probate and inheritance tax planning team works with families at every stage, whether you are thinking ahead while both parents are alive, reviewing matters after the first death or dealing with an estate right now. We explain everything clearly, we work at a pace that suits you and we make sure you understand your options before any decisions are made.
If you would like to talk through your family's situation with us, please get in touch. We would be glad to help.
Hull: 01482 228808. Bridlington: 01262 672321 (by appointment). Hornsea: 01964 537856.
Our local wills and probate teams: wills and probate solicitors in Hull, probate solicitors in Hull, Bridlington, Hornsea and will writing for Beverley.