Martin Lewis has dispelled a common myth about Inheritance Tax, reassuring many that it’s not something most Brits need to fret over.
The consumer finance guru and founder of MoneySavingExpert.com highlighted this during a recent episode of his BBC podcast, which delved into the less cheerful aspects of personal finance such as death and divorce. The episode covered important topics like wills, Power of Attorney, and Inheritance Tax, reports the Mirror.
Addressing concerns among his social media followers, Martin noted that a significant number confessed to feeling “anxious” about Inheritance Tax. This levy is charged on your “estate” encompassing property, money, and possessions upon death. However, it only applies if your estate exceeds £325,000.
Lewis pointed out that this threshold means the overwhelming majority of people in Britain won’t have to pay Inheritance Tax at all. He clarified: “Most of you shouldn’t worry about Inheritance Tax as only one in 25 estates pay it. Only those at the higher end of the wealth scale are impacted by it, only 4% paid it over the last year, although many more – 30% to 40% of people fear it.”
He elaborated further: “If your estate is under £325,000 you don’t pay any Inheritance Tax on the first £325,000. Now, your estate means all your assets, including property, added up. So if you are worth less than £325,000, Inheritance Tax just isn’t an issue for you.”
Martin then highlighted some savvy strategies to legally sidestep the tax, pointing out that many are unaware of the tax-free benefits of bequeathing assets to a spouse.
He elaborated: “Anything you leave to your spouse is exempt, so you can leave whatever you want to your husband or wife and there is no tax on it. But crucially this only applies to people you got married to in a legal ceremony or people you are in a civil partnership with in a legal ceremony. If you have been cohabiting and you are what they call common law husband and wife, or husband and husband or wife and wife, it doesn’t count. It has to be a legal marriage or a legal civil partnership.”
The finance guru further explained that the standard £325,000 Inheritance Tax threshold could be increased by an additional £175,000 to £500,000 if you bequeath your main home to your children, which includes adopted and stepchildren. This means that if the total value of your house and other assets is below £500,000 when you pass them on, there will be no tax implications.
Wrapping up his advice, Martin stressed the importance of understanding that any unused allowance can be transferred to your spouse. He clarified: “So if you left them everything, they could then leave £1million including a house with no Inheritance Tax. As that’s your allowance, so your £325,000 plus £175,000 because you passed on your main residence, so that’s £500 grand and then their £500,000.”