Martin Lewis says a little-known law means you don't have to pay Inheritance Tax

The financial guru and his team of experts have taken a look at the tax on what you pass on in the latest episode of The Martin Lewis Podcast. Here's what you need to know

Financial expert Martin Lewis has offered reassurance to those concerned about Inheritance Tax, explaining that it's not something most need to worry about. Speaking to his listeners on The Martin Lewis Podcast, available on BBC Sounds, Spotify, and Apple Music, he shared that only a small fraction of estates actually end up paying the tax.

"Most of you shouldn't be worrying about Inheritance Tax as onlyone1 in 25 estates pay it," said Martin, adding that: "Only those at the higher end of the wealth scale are impacted by it, only 4 percent pay it, although many more - 30 to 40 percent of people fear it."

He also clarified a common misconception: "Most people don't realise that what you leave to your husband or wife is tax-free.He added: " He emphasised, "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."

However, he warned, "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", reports the Express.

Martin highlighted the importance of legal marriage for tax purposes, stating, "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."

His comments came after hearing from an individual whose partner passed away unexpectedly after 36 years together without being married or having a will.

Their offspring faced a £97,000 Inheritance Tax bill as a result. He elaborated: "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 then pointed out that an additional £175,000 is available, bringing the total to £500,000 if you bequeath your main home to your children.

Therefore, if your house and other assets total less than £500,000 and you're passing them on, it's not a concern. He also highlighted that you can transfer all your unused allowances to your spouse.

Consequently, if everything goes to them, they could potentially pass on £1 million tax-free – this includes your £325k plus £175k for a residence, which is doubled when you combine both of your Inheritance Tax allowances. For those exceeding these limits, the tax rate is 40 percent.

To illustrate, being £100,000 above would lead to a £40,000 Inheritance Tax charge.