Inheritance Tax sometimes has to be paid when someone has died, depending on how much their ‘estate’ – property, possessions and money – is worth
Martin Lewis has explained why most people “shouldn’t be worrying” about having to pay Inheritance Tax.
Inheritance Tax sometimes has to be paid when someone has died, depending on how much their “estate” – property, possessions and money – is worth. If you’re liable for the charge, then Inheritance Tax is charged at 40% on all assets above £325,000.
Inheritance Tax is only due for wealth transferred within seven years of death – and Martin Lewis explained how there are lots of other allowances as well that can increase your Inheritance Tax allowance, which means many people can actually give away more than £325,000. For example, there is no Inheritance Tax to pay when an estate is left to your spouse or civil partner.
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% of people fear it.”
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.”
Your Inheritance Tax allowance is also boosted to £500,000 if you pass on your main residence to your children. This includes the basic £325,000 allowance, plus an additional £175,000. If you are married or in a civil partnership, any Inheritance Tax allowance that isn’t used can also be passed on when someone dies.
This means a couple can potentially pass on as much as £1million without their estate being subject to Inheritance Tax. There are also ways to reduce how much Inheritance Tax is paid on your estate. Your rate of Inheritance Tax on some assets is reduced from 40% to 36% if you leave at least 10% of the net value after any deductions to a charity in your will.
Rachel Reeves revealed in her Autumn Budget in October that the current Inheritance Tax thresholds will remain frozen by a further two years until 20230. She also revealed inherited pensions will be subject to Inheritance Tax from 2027. Under current rules, if you die before the age of 75, the person inheriting your pension will not have to pay tax on your retirement savings – but if you die after the age of 75, those who inherit your pension pay Income Tax when they draw from it.
