Money Saving Expert founder Martin Lewis says people leaving money and property can ensure their relatives avoid hundreds of thousands of pounds of income tax – if they are married and leave it to their spouse.
Returning on the latest episode of The Martin Lewis Money Show Live on ITV1 and ITVX, Martin explained how Inheritance Tax thresholds, usually set at just £325,000, can be boosted right the way up to £1m.
Normally, those leaving assets when they die can leave up to £325,000, and then every £1 left beyond that is taxed at 40%.
If you leave a property as part of your estate, this is increased to £500,000 including £175,000 property allowance.
And when you are married, you can pass on your Inheritance Tax threshold to your husband or wife, as long as they then pass it down to your direct descendants (children, including adopted and foster children).
This doubles your inheritance tax threshold to £1m of cash and property – as long as the property is a primary residence – that can be passed down to your kids, tax-free.
Martin gave his viewers the example of a couple who have £1m in assets including a house, and were married.
Martin said: “He leaves everything to his wife, all the money goes across. Now because he has left everything to his wife, he has not used any of his inheritance tax allowances, therefore she gets the inheritance tax allowances that he had.
“So now, she can pass on £650,000 [£325,000 doubled] and another £350,000 [£175,000 property allowance, doubled] if they’ve got a primary residence, that’s £1m.”
But this only works for married couples, not those who are just co-habiting.
Martin added: “Now let’s just imagine they did exactly the same thing but they weren’t married.
“In that same scenario, he’s left everything to his partner, so he’s used up his inheritance tax allowance, now if she leaves everything to the kids, she only has half of that, so that’s £500,000 – and gonna be paying tax on it.
“Well, you know what, depending on the amount you could be talking £200,000 of tax paid because they weren’t married.
“That is by far the biggest benefit of marriage for those who have assets.”
