Money expert issued a stark alertto cohabiting couples who are not married about a key exemption they cannot access
Martin Lewis has given a warning to anyone who is living together and has not yet tied the knot. He also explained a ‘widely misunderstood’ tax, explaining that it predominantly affects the very wealthy, but issued a stark warning to unmarried cohabiting couples. Mr Lewis previously addressed the issue on X.
Mr Lewis stated that only the top four per cent are required to pay because it typically applies to estates valued over £1 million. Mr Lewis explained: “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 said anything bequeathed to a spouse or civil partner is exempt from this levy. Consequently, if you leave assets to your husband or wife, no inheritance tax is payable.
However, he explained: “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.”
Regarding the actual figures, he clarified that individuals don’t pay inheritance tax on the first £325,000 they pass on to others 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.”
He went on to say: “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.”
Martin Lewis warns of deadline for couples to claim up to £1,260 HMRC allowance
Martin Lewis has also urged all married couples to take immediate action to secure a substantial tax benefit. The money expert stressed how couples can obtain valuable support when one partner isn’t in employment.
Mr Lewis had previously explained how the scheme essentially provides a £1,260 tax reduction for married couples, noting it’s accessible ‘provided one of you is aged under 90’ – specifically those born after 5 April 1936.
Approximately 2.1 million eligible people are failing to claim this money, and those who’ve never previously submitted a claim could receive £1,260 in a single payment by backdating their application over the previous four years plus the current year. The scheme allows one partner who isn’t liable for tax to transfer their unused personal allowance to their spouse or civil partner.
Mr Lewis explained: “Imagine we have a couple here. The crucial part of this. One of you needs to be a non-taxpayer, so you are not earning your full personal allowance you can earn before you start paying tax on it.”
Anyone who doesn’t have an income tax liability qualifies as a non-taxpayer for this relief. The partner claiming the allowance mustn’t be paying more than the basic 20 per cent tax rate.
He continued: “Clearly you have to be married or civil partners. Then what happens is this, each of you have your £12,570 personal allowance. That’s the amount you can earn that you don’t pay tax on each year.
“So the non-taxpayer can apply to Gov.uk to move 10% of their tax-free allowance across to the basic rate taxpayer.”
He explained that this transfer means the non-taxpayer retains an allowance of £11,310, whilst the taxpayer gains an increased allowance of £13,830.
