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Buy-to-let landlords with property assets held in a company could be taking advantage of the current dip in house prices to plan for succession and mitigate their exposure to inheritance tax (“IHT”).

The UK rate of IHT is 40% and property investment businesses do not generally qualify for relief from IHT, so the full value of shares in a property company is usually exposed to IHT on death. This can result in the family’s enduring wealth being substantially eroded.

A larger number of property portfolios have come within the scope of IHT over the past decade, and for larger portfolios, exposures have increased. The nil rate band at which IHT becomes payable has remained frozen at £325,000 since April 2009, but average house prices in the UK have risen by 85% over a similar period, according to the Land Registry UK House Price Index.


Over this same time, prices have increased by more than 100% in the South East, and nearly 115% in Greater London.

Where property portfolios are held in a company, funds often need to be sourced separately to pay any tax charges. Further tax charges will arise if this is by taking dividends or, in worst cases, the company may need to be liquidated. Opportunities for simple lifetime planning are also limited: capital gains tax charges will arise in respect of most gifts of shares in a property company, and some IHT will usually become immediately payable if more than £325,000 of value is transferred into trust. These tax charges will often be prohibitively high. IHT planning for property businesses therefore often focuses on preventing exposures from increasing, rather than reducing existing exposures.

More recently, property prices have been falling, but many investors believe they could recover quickly. There are various restructuring tools that can be used to lock in a current valuation and, with house prices presently depressed, there is a window of opportunity to plan to achieve this outcome.

In some cases, relatively straightforward strategies like freezer/growth shares can help to freeze current value, allowing for capital growth to be transferred to the next generation of the family.

For business owners with larger portfolios who are open to the prospect of transferring ownership of the business during their lifetime, other forms of corporate reorganisation can also work effectively to limit the extent of value accumulating in their estate.

For example, the restructuring principles routinely applied in conventional corporate transactions, buyouts and succession planning can also be applied to property investment companies.

These provide a framework and mechanisms for a succeeding generation of shareholders to acquire the shares, whilst also allowing for the existing shareholders to realise and ‘lock in’ the current value of their shares. This can potentially be achieved without any significant immediate tax charges, and in a way that provides financial security for all parties, as well as flexibility and other options for lifetime planning.

A number of restructuring tools can also be flexibly combined with trust arrangements to provide for more dynamic succession of wealth, some degree of ongoing influence, and wealth protection.

Inheritance tax planning for property businesses is a complex area, and there are often various options to consider, with varying degrees of effectiveness and cost. These are most effective when values are low.

Whilst the current dip in property prices is concerning from a commercial perspective, it could present a potentially unique opportunity for property investors to plan ahead to mitigate IHT exposures.

* Peter Mills is a tax director at accountancy firm Menzies LLP *

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    It all seems very complicated.
    I probably should fully incorporate but there seems to be so much conflicting information and potential pitfalls.

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    • A JR
    • 19 August 2023 10:58 AM

    I am repeatedly bewildered by it all and the more advice I take the more confusing things become.

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    I paid a very large inheritance tax bill when my father died - well over a million pounds.

    My father had discussions with his accountant about ways to reduce the inheritance tax bill that I would have to pay, but the strategies recommended generally involved transferring his property to me while he was alive. I wasn't prepared to allow that. My father had worked extremely hard all his life to buy and let his properties and the income from those properties was his pension. I said I would pay the inheritance tax whatever it was.

    I own the properties now, but I am very conscious of the fact that the Government seems set on taking away those, too. They seem to want everything from you.

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    Ellie if u didn’t mind paying that amount in IHT. You must have the funds to do same when it’s ur turn to Passover. Or look into ways to avoid it by expensive profs.


    I did mind paying that amount in IHT really. My father left some money as well as the property, and I paid the balance as I received money - not in one go. I aborted the purchase of another property so that that money could go to HMRC.

    We don't know what the inheritance tax situation will be in the future. There are discussions about abolishing it.

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    I point everyone to the case of Linda Bellingham and her plans to mitigate the IHT amount after her death 🤐 it went very badly indeed for her son’s. I guess step families are different as the children that are left behind are not the offspring of the surviving partner. Always a mine field, but we hope we know our family situation and they will ‘ do the right thing’ 🤔

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    • A JR
    • 20 August 2023 05:32 AM

    Sadly I can’t see IH being abolished or even reduced, all taxes are on an upward trajectory in order to pay for years of massive Gov overspending and inept fiscal management. CGT will be the next tax on the rise, again!

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    I wonder if the Government could be persuaded to abolish capital gains tax for people who have reached retirement age.

    We all know that they and activists don't want all landlords to sell up at once, and there is perhaps an argument that landlords should be allowed to retire like everyone else.

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    Well don’t be fooled by Labour saying they won’t increase Tax rates for People with wealth. Once they are in power, they will find a way to increase Tax rates, maybe under a different label, but they will do it.
    As for incorporation, I have looked into it extensively and if you don’t have Mortgages or they are minimal, I can’t see the benefit. Except of course to the planners who wanted to charge me £25k, and of course there is no guarantee that the Tax man won’t change the rules.

  • Chris Haley

    Securing legacy need not require incorporation and messing around with shareholdings; it does not even require Trust arrangements. Simple lawful planning without relying on reliefs fior which clearance has not been possible for 6 years


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