Martin Lewis' fully legal method to pass on £1m with no Inheritance Tax

Money Saving Expert founder Martin Lewis has shared a fail-safe and fully legal method to pass on as much as £1million to your children without them having to pay any Inheritance Tax on it.

Many people will know that Inheritance Tax kicks in if you leave more than £325,000 to your kids after you die. But Martin Lewis sets out that there are some fully legal steps you can take to pass on £1m to your children and not pay any tax on it at all.

Martin last year took his The Martin Lewis Podcast listeners through a range of Inheritance Tax tips which could help you avoid paying a tax on any amount up to £1m after you die, a massive £675,000 boost against the usual allowance threshold, and he has also shared this method on his ITV show several times.

Most people don't realise that what you leave to your husband or wife is tax-free. You don't pay any tax on any amount left to your husband, wife or civil partnership partner, as long as you are legally married (or civil partnered).

Martin told his BBC Sounds, Spotify and Apple Music listeners in 2024: "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.

"But crucially this only applies to people you got married to in a legal ceremony or people you are in a civil partnership with in a legal ceremony.

"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."

Martin heard from someone whose partner died suddenly after 36 years together. They weren't married and had no will.

Their children paid £97,000 Inheritance Tax because of it.

He continued: "If your estate is under £325,000 you don't pay any Inheritance Tax on the first £325,000.

"Now your estate means all your assets including property added up. So if you are worth less than £325,000, Inheritance Tax just isn't an issue for you.

Martin added that this amount is also boosted by £175,000 up to £500,000 if you pass on your main residence.

So if your house and other assets are £500,000 and you're passing it on then it's not an issue and you won't be taxed.

Finally, you can pass ALL of your unused allowance to your spouse. So if you left them everything, your spouse pays no tax on anything they inherit from you. Then, they inherit your tax allowance.

So that means thy could then leave £1m including a house with no tax - your £325k plus £175k including a house, then doubled by adding your and their Inheritance Tax allowances together.

That means if you follow each of those rules - you pass on a house to your spouse as part of a £500,000 estate, then your spouse passes it to your kids when they die, you'll have successfully passed down £1m with no Inheritance Taxes.

If you do happen to go over those thresholds, you will be charged at 40 percent on anything over £1m.