in     by Danielle Sutcliffe 06-06-2019

When speaking to clients with property portfolios, I often hear phrases such as ‘the properties are for my pension, I will sell them before I die’. That is all well and good but what if you die before you reach pension age and have not sold your properties? What if you have sold them but the proceeds are sat in the bank? 

Planning for the future is key for any landlord as your estate could be hit with endless problems if the correct provisions have not been made. Making a will allows you to anticipate the issues that could arise and plan effectively to prevent them from occurring.

One major concern of many landlords is Inheritance Tax (IHT) and how much their estate will be liable for. The Nil Rate Band (NRB) for a single person is currently £325,000 and for a couple it is £650,000. This means you can have assets up to this value before you will be liable for IHT. However, if you are over this threshold, tax will be paid at 40%!! 

Example 1

Mr Smith has 5 solely owned properties valued at £300,000 with no mortgages. He also has other assets (savings, investments, personal affects) totally £100,000. This gives him an estate value of £400,000.

IHT Calculation for Mr Smith

                £400,000 - £325,000 = £75,000

                40% IHT paid on £75,000 = £30,000

Example 2

Mr & Mrs Patel have 9 properties valued at £1m with no mortgages. They have no other savings or investments. As a couple they can make use of the double NRB of £650,000. Mr Patel dies and leaves his estate to his wife. Some years later Mrs Patel passes away and leaves her estate to her children. 

IHT Calculation for Mrs Patel

£1,000,000 - £650,000 = £350,000

40% IHT paid on £350,000 = £140,000


If Mr Smith, or Mr & Mrs Patel has sought the correct legally advice they could have planned for the potentially IHT liability and limited it through lifetime gifts and gifts to exempt beneficiaries in their will.

The issue that often arises in these instances is that to pay IHT on an estate, properties need to be sold or other assets cashed in. This cannot be done until a Grant of Probate has been released, giving the executors access to the estate funds. However, to obtain a Grant of Probate any IHT must be paid first. This leaves the estate in a difficult situation as the estate funds are needed to pay the IHT, but they cannot be accessed until the IHT has been paid! Could your executors find £££s to pay your IHT liability? Probably not. Estate Planning is incredibly important to prevent your loved ones from facing an unexpected tax bill.  

For more information on how you can plan for your future and reduce your IHT bill, call today on 01642 968707.



 *This example assumes that there is no entitlement to Residence Nil Rate Band (RNRB)