Inheritance Tax on the Second Death UK (2026): IHT Planning for Surviving Spouses

No. Transfers between UK-domiciled spouses or civil partners — whether during lifetime or on death — are entirely exempt from inheritance tax under the spousal exemption (Inheritance Tax Act 1984, s.18). When the first spouse dies and leaves their estate to the surviving spouse, no IHT is payable, regardless of the size of the estate. The IHT liability is deferred to the second death, when the combined estate of both spouses passes to the next generation or other beneficiaries. It is on the second death that the family faces the IHT bill — often on a much larger estate that has grown over the survivor's lifetime.

The transferable nil-rate band (TNRB) allows the unused proportion of the first spouse's nil-rate band to be transferred to and used by the surviving spouse's estate on the second death. The nil-rate band is currently £325,000 per person. If the first spouse left their entire estate to the surviving spouse (using the spousal exemption and thus using none of their own nil-rate band), the whole £325,000 NRB transfers. This means the surviving spouse's estate benefits from a combined nil-rate band of up to £650,000 before IHT is payable. The TNRB is claimed by the personal representatives of the second estate on the IHT400 form, by reference to the first spouse's estate. It applies even if the first spouse died before October 2007 (when the TNRB was introduced), provided the second death is after that date.

The residence nil-rate band (RNRB) of £175,000 per person (2026/27) reduces IHT when a qualifying residential property is passed to direct descendants (children, grandchildren, step-children). Like the standard nil-rate band, any unused RNRB from the first death can be transferred to the surviving spouse's estate. If the first spouse left their home to the surviving spouse (not to children), the first spouse's RNRB was unused and the entire £175,000 transfers. On the second death, the surviving spouse's estate can claim their own £175,000 RNRB plus the transferred £175,000, giving £350,000 combined — but only if the surviving spouse's home (or a downsized property via the downsizing addition) passes to direct descendants. Combined with the double NRB, the total IHT-free threshold for a couple can reach £1 million.

The £1 million figure is the maximum combined IHT-free amount for a married couple when both the transferable nil-rate band and the transferable residence nil-rate band are fully used: (£325,000 own NRB) + (£325,000 transferred NRB) + (£175,000 own RNRB) + (£175,000 transferred RNRB) = £1,000,000. This requires: (1) the first spouse to have left their estate to the surviving spouse, using neither their NRB nor RNRB; (2) the surviving spouse's estate to include a qualifying residential property (or downsizing addition); (3) the home to pass to a direct descendant. The RNRB also tapers down for estates over £2 million (£1 reduction in RNRB for every £2 over £2m), so very large estates cannot access the full £1 million threshold. The NRB is frozen at £325,000 until April 2030 under current government policy.

Several steps are important: (1) Claim the TNRB on the first death's IHT return (IHT400/IHT421), even if no IHT is payable — this creates the administrative record. Keep a copy of the spouse's death certificate and their will. (2) Check whether the first spouse made any lifetime gifts within seven years of their death that used some of their NRB — if so, the amount available to transfer is proportionally reduced. (3) Make a new will — a surviving spouse's will almost certainly needs updating to reflect the changed family and tax position. In particular, consider whether leaving the home directly to children (rather than into a life interest trust for yourself) is appropriate. (4) Review LPAs — if both LPAs named the deceased as sole attorney, they are revoked. New LPAs must be made. (5) Take specialist financial advice on the pension position — from April 2027, unused pension funds count toward IHT on the second death.

Before April 2027, most defined contribution pension funds remaining undrawn at death pass outside the estate for IHT purposes — they are not counted in the estate value and can be nominated to children or grandchildren free of IHT. From 06 April 2027, undrawn pension funds (defined contribution/money purchase pensions) will be brought within the estate for IHT on death. For a couple, this means the surviving spouse's pension pot — which may have grown substantially, particularly if both partners' pension funds were consolidated — will be subject to 40% IHT on the second death above the available nil-rate bands. For estates that have relied on pension funds as an IHT-efficient legacy vehicle, this is a significant change. Review pension beneficiary nominations and consider drawdown strategy with a regulated financial adviser before April 2027.

The TNRB transfers proportionally, not as a fixed £325,000. If the first spouse used 50% of their nil-rate band (for example by leaving £162,500 to adult children rather than the surviving spouse), only 50% of the NRB transfers — adding £162,500 (50% of the current NRB of £325,000) to the survivor's estate. The HMRC formula applies the percentage of unused NRB at the first death to the NRB applicable at the second death — so the actual transferred amount depends on the NRB at the time of the second death, not the first. The same proportionate transfer rule applies to the RNRB. If the first spouse's NRB was entirely used (e.g. left to adult children or used by substantial gifts), no TNRB is available on the second death.