BBC and ITV star Martin Lewis has highlighted a legal way for UK households to avoid Inheritance Tax, allowing them to leave up to £1 million tax-free. The HMRC loophole boosts the standard threshold by an extra £675,000 for married couples or civil partners.
How the Inheritance Tax loophole works
Under current HMRC rules, individuals can only leave £325,000 to their loved ones without incurring Inheritance Tax. However, Osborne Law explains that married couples can increase this to a staggering £1 million. Elspeth Nielsen of Osborne Law states: "Inheritance tax of 40% currently applies to assets worth over £325,000, with each individual able to claim an additional tax-free allowance when a residential property is passed on to a direct descendant."
She adds: "The allowance will rise by £25,000 this year to £175,000, allowing a married couple to pass on up to £1m tax-free, as long as the family home is included."
Martin Lewis on the two major benefits
Martin Lewis, aged 52, outlines two key advantages. First, anything left to a spouse is exempt from Inheritance Tax. "So even if you were incredibly wealthy and leaving billions, there would be no inheritance tax when it passes to your husband, wife or civil partner," he said.
Second, unused allowances can be transferred to the surviving partner. "Imagine you die and leave everything to your spouse," Lewis explained. "That means your allowances haven't been used. When your partner later dies, they can combine their allowance with yours." This allows couples to leave up to £1 million to their children without Inheritance Tax.
Additional gifting rules
Lewis also notes there are many rules about gifts made while alive, whether from income or covered by specific allowances, which can reduce the amount of Inheritance Tax due. "There are huge numbers of rules around gifting and allowances," he said. "We go through them in detail so people really understand how inheritance tax works."
