There is no formal time limit, because this practice has no statutory recognition.
However HMRC may seek to argue that it is in reality a testamentary gift by the spouse who dies first to non-exempt beneficiaries. I would expect an argument based on sec 268 IHTA -the ‘associated operations’ rule- to the effect that the gift by the recipient spouse was part of an arrangement with the other spouse which comes within the rule. This is going to turn on the facts of the case and the time lapse between death and gift is only one of them.
I have heard it said that death is not capable of being an associated operation, although I’m not aware of any authority to this effect; I have also heard it said that whilst death may not be an ‘operation’, a will could be. The section makes it clear that ‘operation’ includes an omission, so normal English usage is clearly only of limited application.
I have some clients in a similar situation and I’d be very interested to hear other contributors experiences.