Unmarried Couples: A Financial Wake-Up Call!
In a recent eye-opening interview, renowned personal finance expert Martin Lewis issued a critical alert to all unmarried couples living together. This conversation, which took place on his ITV program, delved into the top financial priorities for 2026, but it quickly turned into a discussion about the often-overlooked risks of cohabitation without legal ties.
The Inheritance Tax Trap
A viewer asked Martin Lewis a crucial question: Should they prioritize sorting out their will, power of attorney, or pensions and taxes? Lewis highlighted the importance of power of attorney but also brought attention to the potential inheritance risks that unmarried couples and their families might face.
Lewis explained that while only a small percentage of the population (around 6% to 8%) pays inheritance tax, many people worry about it unnecessarily. For married couples leaving their property to descendants, there's a way to avoid inheritance tax on up to £1 million. However, for unmarried couples, the threshold is £500,000, which may not be an issue for many. He encouraged viewers to read more about it.
Marriage's Financial Benefits: A Substantial Advantage
Lewis has previously discussed the advantages of marriage regarding inheritance on his podcast, particularly cautioning those who are merely cohabiting. He described these benefits as 'substantial' and clarified that they apply to anyone in a legal civil partnership, not just married couples.
The Two Big Inheritance Tax Benefits of Marriage
Assets Left to Your Spouse Are Tax-Free: Lewis explained that when you die, any money, property, or assets left to your spouse are automatically exempt from inheritance tax. This is a significant advantage over unmarried couples.
Passing on Your Unused Inheritance Tax Allowance: An even more crucial benefit is the ability to pass on any unused inheritance tax allowance to your spouse. Normally, you don't pay inheritance tax on the first £325,000 you leave, and if you're leaving your main residence to direct descendants, you get an additional £175,000, totaling £500,000 tax-free. If you leave everything to your spouse, they inherit your unused allowance, meaning they can leave up to £1 million tax-free when they pass away.
A Real-Life Scenario
To illustrate this point, Lewis presented a scenario involving a couple with £1 million in assets, including property. If they were unmarried and one of them died, they would leave everything to the surviving partner, using up £500,000 of their inheritance allowance. When the surviving partner dies, they have £1 million in assets, but their inheritance tax allowance is only £500,000, resulting in a £200,000 inheritance tax bill.
In contrast, for a married couple with the same assets, the first spouse to die leaves everything to the surviving spouse, including their unused inheritance tax allowance. When the second spouse dies, they can leave the entire £1 million to their children, tax-free, saving £200,000.
Power of Attorney: A Crucial Legal Tool
Shifting the focus to power of attorney, Lewis explained that this legal document allows you to nominate people to manage your finances, health, and well-being if you were to lose your faculties. He emphasized the importance of having this in place, especially for young people, as it can be a nightmare to navigate financial and health decisions without it. If you were to have an accident and become incapacitated, without a power of attorney, your finances and treatments could be at risk.
Takeaway and Thought-Provoking Questions
So, what's the key takeaway? For Martin Lewis, it's clear: getting your power of attorney in order is a top priority. But here's where it gets controversial: do you think unmarried couples should prioritize getting married or a civil partnership for financial reasons? Is it worth it to navigate the legal system for these benefits? Share your thoughts and experiences in the comments below!
