Martin Lewis has revealed a significant financial advantage of marriage, although it might not be the most romantic tip. While love might be a great reason for tying the knot, there are other practical things to consider when taking the plunge.
In a clip from ITV 1’s The Martin Lewis Money Show, the Money Saving Expert highlighted the “hidden financial benefits” of marriage, including substantial savings on inheritance tax. Viewers were astounded to learn that marriage could result in savings of up to £200,000 on inheritance tax, with Lewis explaining the details.
“Where marriage really counts is when you die,” he said, prompting awkward laughter from the studio audience. He clarified: “So the first thing to say. Anything you leave to your spouse is exempt from inheritance tax. So there is no tax to pay on anything that you leave your spouse.”
However, Lewis did note that both parties must be “UK residents” for this to apply, otherwise things “can get complicated”.
He then shared a crucial tip: “Any unused inheritance tax allowance passes on to your spouse. You don’t need to do anything to activate it, although, when you die, the executors need to send the documents to HMRC.”
He emphasised that this only applies to those who are married or in a civil partnership, and living together does not qualify.
Lewis proceeded to demonstrate the considerable effect marriage can have on inheritance tax. “Now imagine…Mr and Mrs Youngatheart have £1 million of assets, including their primary home,” he said.
“There you are, Mr Youngatheart and Mrs Youngatheart. And these are their inheritance tax allowances. They have one each. So look, everybody in their estate can give £325,000, and their inheritance tax is paid on it.
“Above that, you get another £175,000 if you’re passing on your primary home to your direct descendant. So that’s children or grandchildren, including step-children, foster children, and adopted children. You pass that on; you get an extra £175,000 as long as your total estate isn’t worth more than £2 million, where it’s gradually taken away.”
Continuing with his example, Lewis added: “Now, I have some very bad news, everyone – Mr Youngatheart has passed away. But he leaves everything to his wife. Now, because he has left everything to his wife, he has not used any of his inheritance tax allowances, and therefore, she gets the inheritance tax allowances that he had.”
Spotting a reaction in the crowd, Lewis mentioned an audience member, noting he’d “just seen his face” and remarking on the considerable “impact” that marital status can have.
He concluded by explaining, “So, now, she can pass on £650,000 and another £350,000 if they’ve got the primary residence, that’s £1 million. Now, let’s just imagine that they did exactly the same thing, and they weren’t married.
“So, you’ve got Mr Youngatheart and Miss Dout. Missed out, there you go,” he chuckled, eliciting laughter from the audience.
He elaborated on the financial implications: “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; she’s going to be paying tax on it.”
Lewis then highlighted the potential cost of not being married: “Depending on the tax, we could be talking £200,000 of inheritance tax paid because they weren’t married.”
Turning to an audience member with a jest, Lewis quipped, “Have you got the ring yet?”
For personalised financial advice tailored to your specific money situation, always consult a financial advisor.
