Martin Lewis busts inheritance tax myths – learn the way you might be affected

Financial journalist Martin Lewis has defined a number of the widespread “misunderstandings” about how inheritance tax (IHT) works to assist folks perceive if they are going to pay the 40 p.c levy.

The founding father of MoneySavingExpert shared a “quick myth-buster” video clip on his X web page because the tax has been within the news lately following studies the Government is axing the coverage altogether.

He shared 5 key guidelines of the tax for folks to know:

1. Exemptions for spouses and companions

Any quantity an individual leaves to their partner or companion is exempt from inheritance tax, with nothing for the remaining companion to pay.

Mr Lewis warned the principles are “strict” in {that a} couple the place they’re co-habiting won’t get the exemption when one companion dies.

2. The £325,000 nil fee

This guidelines means a person can go away as much as £325,000 to different folks and there will probably be no inheritance tax to pay on these property. Any whole property above this quantity could also be responsible for the tax.

3. The bigger £500,000 nil fee for predominant residences

There is a further residential nil fee band of as much as £175,000 if an property being inherited contains the primary residence of the deceased, to a direct descendant.

Mr Lewis defined: “That’s your biological, foster, step or adopted children and grandchildren, although you don’t get that boost if your estate is worth over £2million, this is only for estates under £2million. The £325,000 goes up to £500,000.”

4. Surviving companions can get any unused IHT allowances

Mr Lewis mentioned this guidelines is “really important to understand”, as an individual cannot solely cross on half or all of their property to their companion IHT-free, they will additionally cross on any unused nil-rate allowances.

He gave the instance the place a husband dies and passes on his £500,000 allowance to his spouse, who then dies and passes on each their allowances to their youngsters.

In this case, the youngsters would get a complete £1million allowance. Mr Lewis mentioned: “That is a very large amount which covers what the vast majority of households in the UK are worth.

“Hence why only a few pay inheritance tax. Of course, in the event you’re not married, you do not get to cross your unused allowance on.”

5. You can cut back your IHT legal responsibility in a number of methods

Mr Lewis pointed to items from an individual’s annual revenue, which aren’t topic to IHT. An individual can even give away as much as £3,000 divided between any variety of folks.

Individuals can even give away any variety of items as much as £250 every year to totally different folks and keep away from paying tax on these quantities.

There can also be the choice to provide away a bigger quantity and keep away from the tax on it, so long as an individual lives for one more seven years after the reward is made.

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