Many landlords invest in property partly to create wealth for themselves, and partly so they’ll have a financial asset to pass on to children or other family members. If that’s you, it’s important to make sure you understand the tax implications of passing on property wealth and make sure you plan properly to mitigate the tax liability for your beneficiaries.
Here are 5 key steps to take:
Get up-to-date valuations on your properties
In general, inheritance tax (IHT) is payable at 40% on the value of your estate over the nil-rate threshold, which is currently £325,000. (Although, if you’re leaving your own home to your children or grandchildren, the threshold can increase to £500,000.) Given that property often makes up a large part of people’s total estate, it’s important to have an idea of how much the tax liability could be – particularly if you’re a portfolio landlord - and get new valuations every couple of years.
Speak to a mortgage broker about the potential for releasing equity
Even if you don’t currently have any plans to remortgage, it’s worth speaking to a mortgage broker to find out how much equity you could possibly release, as it may be more tax efficient to gift it to your children now. The mortgage would be a liability against the eventual value of your estate, reducing the IHT bill, and the cash gifts may not attract any tax – but this needs to be discussed with a specialist adviser, as below.
Make a list of all your other financial assets
HMRC will consider your property wealth together with all your other financial assets, so make a list of all your investments and savings, noting how they’re currently owned. And also decide who you’d like to pass them on to and/or which you plan to dispose of in the coming years.
Consult an independent financial advisor or wealth manager and a property tax expert
Once you’ve got all your financial information together, meet with an independent financial adviser or wealth manager who can help you structure and plan your affairs so that you pass on as much of your wealth as possible to your beneficiaries. Property tax is a particularly complex area, so it’s wise to speak to a tax specialist as well.
Working together with these advisers, you can ensure that your properties are owned in the most tax-efficient way and decide whether it might be sensible to gift or transfer any assets over the coming years to reduce the value of your estate for inheritance tax purposes – making sure you understand the potential consequences of making gifts.
Make/update your Will
Your financial adviser should be able to recommend a suitably qualified trust and estate planning solicitor, who can create and update your Will as your wealth or personal circumstances change. And it’s important to keep your Will up to date going forward so that it always reflects your current situation and wishes – ensuring the people you want to receive your property wealth actually get it!
The GOV.UK website has more detailed information on inheritance tax, but it really is essential to consult a financial adviser who’s experienced in dealing with property investment assets and can create a plan that’s tailored specifically to your own circumstances. If you would like any advice on finding the right financial adviser or need up-to-date valuations for your properties, just get in touch with your local Reeds Rains branch – we’re always here to help.
Nothing within this article should be deemed to constitute financial advice and in the event that you wish to have any such advice, you should contact a financial advisor.