Inheritance tax: What to do when your second parent dies

Michelle Holgate
Director, Wealth Manager
RBC Brewin Dolphin

The upset of losing a second parent is an emotionally difficult time, and understanding the potential implications of estate planning and IHT can also feel extremely daunting.

Here are some of the main considerations to help you through this time.

Working out the initial steps you should take after your loss

At such an emotional time, it’s difficult to turn your mind to the practical steps you need to take after losing a loved one. Here are the key steps you could start with:

• Register your parent’s death: the first step is to register the death and obtain a death certificate.
• Check to see if they had a will: you should locate the will, if there is one, if not, the rules of intestacy will apply.
• Ensure the estate is professionally valued: you’ll need to get a professional valuation of all assets, for example savings and investments, property, art etc.
• Apply for probate (if needed): this is the legal process of managing your parent’s estate.

Understanding IHT and why it matters

IHT is a tax on the transfer of wealth. In the UK, most people benefit from a nil-rate band (currently £325,000) and residence nil-rate band (currently up to £175,000) – meaning you typically don’t pay IHT on estates up to this value (currently £500,000).

It’s important to note that each estate is assessed independently, following each passing. This is where a key difference arises compared to the first loss in a couple. While the first passing triggers the possibility of using the nil-rate band and residence nil-rate band, with the second loss, any unused portion from the first parent’s estate can be transferred, potentially doubling the tax-free amount available. This means that a couple could potentially pass on up to £1m before IHT becomes due.

A guide to inheritance tax planning

Learn more about estate planning, and how writing a will, lifetime gifting and managing your IHT liability can help you and your loved ones in our comprehensive guide.

Download guide

Making the most of tax allowances and reliefs

Several allowances and reliefs can help you manage your IHT liability, these include:

• A deed of variation: this allows you to make changes to a will after your parent has passed away. This could help you manage your IHT.
• Unused nil-rate band allowances: you can claim unused nil-rate band allowances from the first parent’s estate.
• The residence nil-rate band: this applies when a property is passed to direct descendants (children or grandchildren). Certain conditions apply.
• Donating to a charity: leaving a portion of the estate to charity can reduce IHT.

Some common challenges you may face

You may have to deal with an estate with numerous assets or international holdings, which often require specialist advice. There may be family or beneficiary disputes which may need open communication and mediation. There’ll also be deadlines to meet, such as IHT payment deadlines – making sure your make payments within six months will prevent interest charges.

Next steps

Seeking guidance from a wealth manager, solicitor, and tax specialist can support and provide you with personalised solutions tailored to your unique circumstances.

Find out more from our dedicated support team by calling us on 020 7246 1111. Opening hours are Monday to Friday 9am to 5pm.

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The value of investments, and any income from them, can fall and you may get back less than you invested. This does not constitute tax or legal advice. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. You should always check the tax implications with an accountant or tax specialist. Information is provided only as an example and is not a recommendation to pursue a particular strategy. Investment values may increase or decrease as a result of currency fluctuations. Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.