Inheritance Tax: Who Pays and Who Doesn't? Expert Explains

Inheritance Tax in the UK: A Simple Explanation The UK's inheritance tax system often causes confusion. However, financial expert Martin Lewis recently clarified key aspects in a short video. He emphasizes that the majority of estates (96%) do not pay inheritance tax due to generous allowances. Lewis highlights two significant exemptions. Firstly, anything left to a spouse or civil partner is completely exempt. "Even if you've lived together for 20 years and have 184 kids," he jokes, "you don't get the exemption if you are not married." This underscores the strict definition of 'spouse' within the tax system. Secondly, there's a threshold of £325,000, increased to £500,000 if the main residence is left to direct descendants. This means many estates fall below the tax threshold. Lewis uses a simple example: a couple leaving their estate to their children, benefiting from the combined allowance of £1 million, effectively avoiding the tax. While the tax primarily affects affluent households, Lewis notes that for those exceeding the allowances, the inheritance tax rate is 40%. He also mentions additional allowances for gifts given during one's lifetime, provided they are given seven years before death. Lewis's video simplifies a complicated subject, making it accessible to a wider audience and promoting financial literacy.

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