Nobody really wants to talk about inheritance tax. It’s morbid, it’s complicated, and most of us would rather avoid the subject altogether. But here’s the thing: the moment that really matters isn’t when the first parent dies — it’s inheritance tax when the second parent dies that changes everything. That’s the point when HMRC steps in and the tax bill becomes very real.
And it’s not just the super-rich who get caught. With UK house prices where they are, plenty of “ordinary” families are suddenly dragged over the inheritance tax threshold without even realising it.
So if you’re asking, “What happens with inheritance tax when the second parent dies?” — you’re already ahead of the curve. Let’s break it down in plain English.
What Inheritance Tax Actually Is
When someone passes away, everything they owned gets counted up. HMRC calls this the estate. That includes:
- The family home (or homes)
- Savings and investments
- Business assets
- Cars, jewellery, even that vintage record collection
If the estate is worth more than the tax-free threshold, the rest can be taxed at 40%.
Key figures for 2025:
- Nil-rate band: £325,000 per person
- Residence nil-rate band: £175,000 if the home goes to children or grandchildren
- Standard rate: 40%
So yes — your parents’ house and savings could easily trigger a big tax bill.
Why the Second Parent’s Death Is the “Trigger Point”
Here’s the catch: when the first parent dies, the estate usually passes to the surviving spouse or civil partner tax-free. HMRC waits patiently.
But when the second parent dies? That’s when everything gets counted and taxed.
Example scenario:
- Dad passes away first. His £400k house goes straight to Mum with no tax.
- Years later, Mum dies. Now the estate is worth £700k (house + savings).
- At that point, the inheritance tax calculation kicks in.
That’s why people often feel blindsided. The first death doesn’t stir up tax issues — the second one does.
How Much Can Actually Be Passed On Tax-Free?
Here’s the good news: married couples and civil partners can pool their allowances.
| Allowance | Amount | How it Works |
| Nil-rate band | £325,000 | Standard per person |
| Residence nil-rate band | £175,000 | Only if the home goes to direct descendants |
| Combined allowance | Up to £1 million | If both parents’ allowances are fully used |
So in theory, a couple can pass on up to £1 million tax-free — provided the estate qualifies (mainly with a home left to kids or grandkids).
A Real-World Calculation
Let’s say the estate after the second parent’s death looks like this:
- House: £600,000
- Savings & investments: £200,000
- Debts (mortgage/loans): £50,000
Estate value = £750,000
Apply allowances:
- Nil-rate bands: £325k x 2 = £650,000
- Residence nil-rate band: £175k x 2 = £350,000 (but capped, since estate is only £750k)
Result: no inheritance tax at all.
But imagine the estate was worth £1.3 million. After allowances, £300,000 would be taxable. At 40%, that’s a £120,000 tax bill.
How Families Can Reduce the Bill (Legally)
Nobody likes the idea of 40% of family wealth vanishing. The good news? There are ways to cut the bill down:
- Lifetime gifts: Give money or assets more than 7 years before death = no IHT.
- Annual gift allowance: £3,000 per year, plus small gifts under £250.
- Trusts: Used correctly, trusts can ring-fence assets.
- Life insurance: Policies written “in trust” can cover the tax bill.
- Charity gifts: Leave 10%+ of the estate to charity, and the tax rate drops to 36%.
- Pensions: Often outside of the estate, so worth checking.
Bottom line: the earlier the planning starts, the less likely HMRC will take a big chunk.
Common Mistakes Families Make
- “We’re not rich, so it won’t apply to us.” Wrong — property prices alone push thousands of families into IHT territory.
- Not making a will. Without one, the law decides who gets what, and it’s rarely efficient.
- Leaving gifts too late. Those “deathbed” gifts are still taxable.
- Assuming children inherit tax-free. Only spouses and civil partners do.
- Missing the deadline. IHT must be paid within 6 months of death, or HMRC charges interest.
The Family Home Problem
For most people, the home is the biggest part of the estate. That’s why the residence nil-rate band matters.
But here’s the twist: if the estate is worth over £2 million, this allowance starts shrinking. So wealthier families often find the RNRB doesn’t help at all.
Dealing with HMRC
When the second parent dies, the executor of the will (often one of the children) has to:
- Value the estate.
- File the right inheritance tax forms (IHT205 or IHT400).
- Pay the tax within 6 months.
You can pay directly from the estate’s bank accounts, or in instalments if property is involved. But delay too long, and HMRC adds interest.
Planning Ahead – The Conversation Nobody Wants to Have
Here’s the awkward bit: talking to parents about death and money isn’t fun. But avoiding the topic only makes it worse.
A few practical tips:
- Get a will in place — no excuses.
- Keep a record of gifts, trusts, and assets.
- Review the plan every few years.
- Use online inheritance tax calculators (like Gov.uk or Aviva) to get a reality check.
- Speak to an estate planner or solicitor if things are complicated.
FAQs
Q. Do I have to pay inheritance tax on my parents’ house?
Yes, if the estate value is above allowances. The family home usually qualifies for the extra residence nil-rate band.
Q. What happens when both parents die and leave everything to us?
Allowances combine. Up to £1 million can pass tax-free, but anything above that may be taxed at 40%.
Q. Can inheritance tax be paid in installments?
Yes, especially when property is involved. But interest often applies.
Q. How much can I gift my children without paying inheritance tax?
£3,000 a year, plus some smaller exemptions. Larger gifts are fine, but the parent must survive 7 years for them to be tax-free.
Final Words
Inheritance tax is often called the UK’s “voluntary tax.” Not because you can opt out, but because with smart planning, most families can cut it down — or even avoid it completely.
The key moment is when the second parent dies. That’s when HMRC comes knocking. If you don’t plan, you could lose hundreds of thousands unnecessarily.
So have the awkward chat. Get the wills sorted. Look at gifting, trusts, or insurance. Do it while there’s still time — because once HMRC sends the letter, there are no shortcuts.
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