Martin Lewis warning to all unmarried couples living together

Martin Lewis gave his five key points about inheritance tax as rumours grow about the government wanting to cut it for the richest 4 per cent

Martin Lewis has spoken out to explain how a ‘much confused’ tax works – and how hardly anyone apart from the very rich actually pays it – but gave a warning to anyone who is living unmarried with their partner. Mr Lewis took to X, formerly Twitter, today to talk about the issue as there have been rumours that the Conservatives want to cut inheritance tax.

Some advocates have claimed it effectively operates as a ‘double tax’ on earnings which have already attracted tax, and that it’s a charge on aspiration – however Mr Lewis revealed that only the top four per cent are liable to pay because it only begins in general on estates over £1 million.

Mr Lewis explained: “As the budget is coming in March and there’s much discussion of it being cut or even abolished. So I’ve got five simple need-to-knows which should help explain to you exactly how it works as this is a tax. There are so many misunderstandings about. But before I even get to those, let me make one point plain, most people when they die, their estates will not pay inheritance tax. Only 4% of estates did, meaning 96% didn’t, this is primarily a tax that only affects the most affluent households.”

He explained that anything you leave to your married or civil partner is exempt. So if you leave things to your husband or wife, there is no inheritance tax to pay.

But he added: “Now, that definition is strict, married partner or civil partner, not someone you are cohabiting with. Even if you’ve lived together for 20 years and have 184 kids. You do not get the exemption. So, within the financial system, one of the big benefits of marriage is this inheritance tax exemption.

“One way to avoid inheritance tax is to get married. I’m not suggesting you do just saying that’s how the system works.“

In terms of the actual sums, he said people do not pay inheritance tax on the first £325,000 they leave to other people and added: “So if your assets are worth less than £325,000 in total, there’s no inheritance tax to pay. Number three, that £325,000 is boosted to £500,000 if you leave your main residence, the home you live in primarily, to your offspring.

“Number four. And this is a really important one to understand. It’s not just that you can leave anything to your married partner or civil partner. And it’s exempt, you can also leave them any of your unused inheritance tax allowance. So let me do a really simple example for you, you leave everything to your wife and you leave everything to your wife and that she is going to leave everything to your offspring, your collective offspring.

“So she has a £500,000 allowance because she’s leaving the main house. She also gets your £500,000 allowance. So in total, she can now leave a million pounds of assets without paying inheritance tax on it. That is a very large amount which covers what the vast majority of households in the UK are worth.”

And he added: “I wanted to keep this one simple, final thing to say is if you’ve gone through all of those and your estate is still so big that you are going to be charged inheritance tax. The rate is 40% the same rate as the higher rate of income tax for taxpayers. I hope this clears up any of those inheritance tax questions you may have had if it doesn’t. There’s a much more detailed guide available on moneysavingexpert.com.”