Martin Lewis, a well-known financial expert, has reassured the public not to be overly concerned about Inheritance Tax. In a recent poll conducted by Lewis, almost half of the respondents expressed anxiety about potential tax implications on their estate after their passing. However, he emphasised that in reality, only a very small fraction—just 1 in 25 estates—ultimately end up paying any Inheritance Tax.
During a segment on The Martin Lewis Podcast, Lewis shared various insights and tips on how individuals can navigate and potentially avoid paying this tax. He highlighted that the majority of people need not worry about Inheritance Tax, as it typically affects individuals at the higher end of the wealth spectrum. Only 4% end up paying this tax, despite a significantly higher percentage—30 to 40%—expressing concerns about it.
One common misconception that Lewis addressed was related to spousal exemptions. He clarified that no tax is levied on assets left to one’s spouse. However, he specified that this exemption is applicable only to legally married couples or those in a civil partnership, excluding cohabiting partners. Lewis shared a poignant real-life scenario where unmarried partners faced a hefty £97,000 Inheritance Tax bill due to the absence of a legal union or will.
Lewis further explained that estates valued under £325,000 are not subject to Inheritance Tax on the first £325,000. This threshold includes all assets, including property. Additionally, if one passes on their main residence to their children, an extra £175,000 can be added to the threshold, totalling £500,000. This means that for estates below £500,000, there would be no tax implications.
Moreover, Lewis highlighted the possibility of transferring any unused allowance to a spouse. By utilising this strategy, a couple could potentially leave up to £1 million, including a property, without incurring any tax. However, exceeding these thresholds would result in a 40% tax rate, with £40,000 tax on a £100,000 surplus.
In conclusion, Martin Lewis’s advice aims to alleviate the fears and uncertainties surrounding Inheritance Tax for the majority of individuals. By understanding the rules and thresholds involved, people can better plan and manage their estates to minimise tax liabilities after their passing.