So, they increased the necessary space a bit after the first people updated, so its possible 730MB is enough. BUT TRYING IF THIS IS RIGHT CAN BREAK YOUR PHONE: if you can deal with this you can try to update from commandline (and if you don’t know how, than you really shouldn’t do it…)
But 40MB is not that much, perhaps you find a hint here (How to free space on the root filesystem (before an update)) to make that space free on your device.