Money expert Martin Lewis has outlined a way to avoid paying Inheritance Tax and save as much as \u00a3200,000 on assets worth \u00a31million.<\/p>\n
Martin returned on his The Martin Lewis<\/a> Podcast on BBC<\/a> Sounds, Spotify<\/a> and Apple Music on Thursday with another slate of financial wisdom relating to everything from Council Tax to Cash ISAs<\/a>. In one tip he shared with co-host Adrian Chiles, Martin explained how couples can save potentially hundreds of thousands of pounds of Inheritance Tax<\/a> simply by tying the knot.<\/p>\n That\u2019s because there are tax savings that married couples – or couples in a civil partnership – can take advantage of that unmarried couples simply cannot, even if they\u2019ve lived together for decades or have children together. Or both. Martin Lewis said: \u201cI thought it might just be worth explaining to you what the benefit of marriage within the Inheritance Tax world is. It\u2019s actually pretty substantial.<\/p>\n \u201cNow when I talk about marriage this is anybody who is married or has a legal civil partnership but this does not apply to you if you are just cohabiting.<\/p>\n \u201cSo the two big Inheritance Tax benefits: first of all, your spouse won\u2019t pay Inheritance Tax you leave to them. When you die, any money, any assets, that gets left to your spouse is automatically exempt from Inheritance Tax. So there\u2019s no Inheritance Tax to pay on that.\u201d<\/p>\n But, Martin added that the ability to pass on Inheritance Tax allowance to your spouse is even more useful.<\/p>\n He continued: \u201cBut an even more important Inheritance Tax boon of marriage is you can pass on your unused Inheritance Tax allowance to your spouse. So in plain speak, you don\u2019t pay Inheritance Tax on the first \u00a3325,000 you leave when you die. Above that, if you\u2019re leaving your main residence to your direct descendants, you usually get – not in every case – another \u00a3175,000 on top. So that\u2019s \u00a3500,000 that you can leave without paying tax on it.<\/p>\n \u201cSo if you leave everything to your spouse when you die, you haven\u2019t used any of those allowances, and as they\u2019re unused, they get passed on to your spouse.<\/p>\n \u201cThat means that when your spouse passes away, they get your allowance and yours, which means if you\u2019re leaving a main property, they can then leave \u00a31M that they can pass on without paying Inheritance Tax on it.<\/p>\n \u201cThat\u2019s a huge benefit and that\u2019s why it\u2019s often worth looking at getting married (or a civil partnership, it counts in exactly the same way).\u201d<\/p>\n Martin then gave an example of two couples who have \u00a31M of assets including property, one married and one unmarried.<\/p>\n He explained: \u201cLet me just try and do this off the top of my head, so let\u2019s say you and your partner have combined \u00a31M of assets. When the first one of you dies, you leave everything to the other one, well you just used, cos your stuff is worth \u00a3500,000, \u00a3500,000 of your Inheritance Tax allowance. So now your partner has \u00a31M of assets, when they die they pass that on to your children, that\u2019s \u00a3500,000 that would pay Inheritance Tax at 40%, that\u2019s a \u00a3200,000 Inheritance Tax bill.<\/p>\n \u201cNow let\u2019s contrast that to our married couple. In our married couple, they\u2019ve got \u00a31M of assets, the first one dies, all of their assets go to their spouse and their unused Inheritance Tax allowance goes to their spouse. Because they\u2019re passing it to a spouse it didn\u2019t count, so then, when the second one dies, they get to leave the entire \u00a31M to their children, Inheritance Tax free, a tax saving of \u00a3200,000.\u201d<\/p>\n