Financial guru Martin Lewis has highlighted a crucial HMRC rule that could allow married UK households to pass on assets worth up to £1 million to their children completely free of Inheritance Tax. The BBC and ITV star shared the detailed guidance with his followers, outlining the specific legal conditions required to unlock the substantial tax break.
The Marriage Certificate is Key
Martin Lewis, the founder of MoneySavingExpert.com, stressed that the powerful tax exemption is exclusively available to those in a legally recognised marriage or civil partnership. "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," the 52-year-old explained.
He issued a vital warning for cohabiting couples, noting that so-called 'common law' partnerships hold no weight with HMRC in this context. "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," Mr Lewis clarified. Without a will or a marriage certificate, surviving children could face an unexpected tax bill running into tens of thousands of pounds.
Understanding the Allowances: From £325,000 to £1 Million
The expert broke down the figures that make the £1 million threshold achievable. Every individual has a standard Inheritance Tax nil-rate band of £325,000. Estates valued below this amount are not subject to the tax.
The game-changing mechanism is the transferable nil-rate band for spouses and civil partners. Any unused portion of this £325,000 allowance can be passed to a surviving partner upon death. This means if the first spouse leaves their entire estate to the second, the survivor's estate can benefit from a combined allowance of £650,000.
This amount is further boosted by the 'residence nil-rate band', an additional allowance for passing a family home to direct descendants like children or grandchildren. Currently set at £175,000 per person, this allowance is also transferable between spouses.
Professional Guidance and Crucial Deadlines
Accountancy firm Merranti Accounting confirmed the possibility, stating: "Passing £1 million tax-free is possible, but only if you're married or in a civil partnership and you leave a qualifying home to direct descendants."
The firm added important caveats: the total estate value must generally be below £2 million at the time of death, and the correct claims and documentation must be submitted to HMRC in a timely manner. Failure to plan properly or meet deadlines can result in families losing out on tens or even hundreds of thousands of pounds in avoidable tax payments.
Martin Lewis cited a stark example where a family faced a £97,000 Inheritance Tax bill due to a lack of appropriate planning, underscoring the significant financial impact of understanding and utilising these rules.
