My understanding is the Wife 2 can claim H’s unused NRB, so on your figures that won’t just be the £11K he left to her but also the difference between the value of his estate and the amount of his NRB which was presumably £650K. So there should be £48K unused NRB available to Wife 2.
I find the relevant sections of the IHTA headache-inducing but believe sections 8A and 8B expressly permit and allow for the possibility of a second wife, for example, effectively claiming the unused NRB of her husband’s first wife, which is sort of the situation here.
I haven’t submitted one of these claims for a while but I also recall that the IHT forms didn’t work properly in this situation, so you have to do the calculations by hand and explain to HMRC what you have done. They may have corrected that by now.