Money expert Martin Lewis has reassured people worried about Inheritance Tax that they shouldn’t be concerned after all.
The financial guru revealed that nearly half his followers admitted to being anxious about the tax on their estate when they die – but in reality, the vast vast majority will never pay a penny.
Martin then took his The Martin Lewis Podcast listeners through a range of Inheritance Tax tips which could help you avoid paying a tax on what you pass on.
Martin told his BBC Sounds, Spotify and Apple Music listeners: “Most of you shouldn’t be worrying about Inheritance Tax as only 1 in 25 estates pay it.
“Only those at the higher end of the wealth scale are impacted by it, only 4 percent pay it, although many more – 30 to 40 percent of people fear it.”
Most people don’t realise that what you leave to your husband or wife is tax-free.
He added: “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 ceremony.”
Martin heard from someone whose partner died suddenly after 36 years together. They weren’t married and had no will.
Their children paid £97,000 Inheritance tax because of it.
He continued: “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 added that this amount is also boosted by £175,000 up to £500,000 if you pass on your main residence to your children.
So if your house and other assets are under £500,000 and you’re passing it on then it’s not an issue.
Finally, you can pass ALL of your unused allowance to your spouse. So if you left them everything, they could then leave £1M including a house with no tax – your £325k plus £175K including a house, then doubled by adding your and their Inheritance Tax allowances together.
If you do happen to go over those thresholds, you will be charged at 40 percent. So if you were £100,000 over the limit, you would pay £40,000 in tax.