Best bits: Inheritance tax masterclass

**Martin Lewis** (0:01)
That is the risk-averse move to do. Lock in on that now. Who should be considering this and who shouldn't? That's not a bad rule of thumb, is it? Has this totally shaken up all the type of inheritance tax planning that you do with clients and throwing it all up in the air? Then you have to make sure you take the money out, or the rate won't be that good. Hello, I'm Martin Lewis, and this is the cunningly named The Martin Lewis Podcast. I do wonder what that's going to be about. And as I'm taking a wee break for the summer, welcome to a special Best Bits Podcast. Selected and put together by the one and only podcast producer Simon. I'm interested to see myself, what's going to be in it. It's being chosen from our Big Topics Pods. Much of that comes from my Deep Sea Radio 5 Live Show with Adrian Charles. Of course, as it's Best Bits, if you hear me mention any specific products or rates, please do double check that they haven't changed. But big picture should all be good. In this week's Best Bits, we're going to be talking how inheritance tax works in detail, why marriage is the best way to reduce inheritance tax, as well as giving things away, and the change coming that soon means pensions will have inheritance tax on them, as well as all the gifting rules you can utilize and a whole lot more. Then we've picked a tellers for you with great advice from people who've already been there and done that. It's tellers what you learned about money when you retired, that you would now tell others in advance.

**Adrian Charles** (1:40)
Today's main topic is inheritance tax. Talk us through the basics then.

**Martin Lewis** (1:46)
Okay, many fear inheritance tax. When I do polls on this, you know, it's 40, 50% of people are petrified by inheritance tax. But it is worth stating, only 5 to 6% of estates pay it. And even once pensions are included in inheritance tax from April 2027, the estimates I've seen is that will be pushing that up to still less than double figures per cent of estates pay it. Now it is worth noting that's probably slightly underestimating its impact, because as we'll talk about later, if you're married, you can leave everything to your spouse. One of the couples' estates probably wouldn't have any inheritance tax to pay, and the other would. But even if you doubled the numbers, then you're talking 10 to 12 per cent of estates pay it, and with the pensions, up to 20 per cent pay it. It is still a minority, and that's worth starting.
One of the key factors in inheritance tax is whether you are married or not. Now for marriage, I also include civil partnership. If you're single or just cohabiting, even if you've lived with someone for 30 years and don't have any kids, there are very different rules. So let's start off with the rules for those people who aren't married.
Now, single could mean cohabiting with someone and a long-term partner. All my definition of single is, you are not currently married or in a civil partnership. So the classic rule, if your estate, which is all the assets that you have, property, business, shares, savings, everything that you own, is under £325,000 as a single person, there is no inheritance tax to pay.
So if that's you, inheritance tax isn't an issue. It is worth me stating that that £325,000 limit has been frozen since 2009-10, and is expected to stay frozen until 2031 So in real terms, that has reduced quite substantially over the years. But one thing that was added is, the amount you can leave without paying inheritance tax is boosted by up to £175,000 if you pass on your main residence to your direct descendants. Now we're talking your primary residents, but if your primary residence was only worth £100,000, you wouldn't get the extra £75,000 on top. It's up to £175,000 for your primary residents. Direct descendants include biological step adopted and some foster children or the same grandchildren. So if your house is using that allowance up and it's passed on to your descendants, then your total amount, the maximum total amount that you can be leaving under the very simple rules of your estate is £500,000, so then our inheritance tax isn't an issue. It is worth noting, if your estate is over £2 million, you do start to lose that £175,000 property allowance, and it's gone by the time your estate is worth £2.35 million. So that's the sort of the single person's basic inheritance tax.
Now, remember those rules, because they do apply within marriage too, but there are a couple of big allowances for those people who are married or within civil partnerships that can really boost the amount your estate can leave without paying inheritance tax. Let's get to that.