Long Term Planning with your Investment Property


Long Term Tax Planning With the Investment Property


Essential Inheritance Tax Planning with Churchill Tax has a relentless focus. It tells you how to pass your property business on to your successors in the most tax effective manner.

It is designed to give investment property owners clarity on the challenges they face and the strategies they could and should consider adopting to mitigate inheritance tax.

Whether you have a single investment property or several hundred, once you have consulted with us you will understand that the only limits to the depth and reach of your inheritance tax planning, and the resulting tax savings, are your ambitions.


There are two million landlords in the UK.  Between them they own 4.9 million properties with an estimated value of £989 billion.  89% of owners are individuals.  Almost all of those owners and are potentially exposed to inheritance tax.  That represents a lot of inheritance tax.  Governments need you to pay that tax!

In the real world the blunt fact is that a stopwatch starts ticking on the day after you die. It stops just over six months later.

That is the day your family must pay the inheritance tax due on your estate. If your family needs to obtain probate, and they will where your assets include investment property, tax will be due at the time of the probate application itself.

The crucial issue for the family is therefore how on earth to pay the tax?

Inheritance tax on property can be paid by instalments over several years but most people feel that is a just a bit too much like taking out yet another mortgage in practice. Where the value of your estate is concentrated in property the result is often hasty sales to obtain the necessary funds. At a difficult emotional time, the family is also faced with impossible decisions.  It is not quite the legacy they or you might have anticipated. It is not just that the estate passing to the family is significantly less than everyone thought as a consequence of the tax. It is the very practical issue of selling the family jewels or taking out loans to pay for the tax.

Most property owners will not manage the exposure to inheritance tax in their lifetime and so those who inherit their properties will suffer tax of up to 40% on the value of those properties.  That means that the chance of the property business surviving intact is remote.  The business will be broken up to settle the tax within just over six months of death.  That is not much of a legacy!

You would most certainly need to know;

How to pass your property business on to your successors in the most tax effective manner.

Why property owners are notoriously bad at protecting their property business from inheritance tax.

Why you may be stuck in a rut, endlessly poring over possibilities but never resolving anything which can be frustrating.

To have knowledge of highly practical series of steps to get things moving and puts you back in the same position of control as you were when you first started investing in property.

How to break free from circular thinking and secure the future of your property business.

The Issues in a Nutshell

As an owner of investment property there are many good reasons why you may wish to pass those assets to the next generation at some point.

It may be part of a plan to reduce your family’s exposure to inheritance tax when you depart this world.

You may not need the rental income and you may be thinking income tax and wish to take advantage of the lower tax rates that your adult children may have from an income tax perspective.

You may wish to start passing on custodianship to the next generation as part of a succession plan, particularly if you regard your investment property as a business (which it is if you are running it commercially) and not merely a random collection of assets.

All these are potentially sound reasons for planning in principle but there are usually two big downsides where chargeable assets (for capital gains tax purposes) such as property are involved.

Firstly, where your properties have increased in value since you acquired them (as you would certainly hope they will), capital gains tax will be payable on a gift of property just as if you had sold the properties to a third party.  You will be gifting a valuable asset which comes with a steady income stream of immediate value to you but you will also be taxed on any deemed capital gain at rates of up to 28% for the privilege of doing so.  That is a big step to take.

Secondly, there are asset protection issues associated with loss of control of the property.  There is absolutely no protection for the gifted property once you have parted company with it.

In particular you may have concerns over young or inexperienced family members who may not have the same long term perspective or skills in property management that you have.  A common worry is that beneficiaries may mortgage property or even sell it to put themselves in funds, particularly if they have expensive tastes or habits or might acquire them.  They may also come under pressure from what you may regard as avaricious non-family members.  If you no longer own the property, there is little you can do to prevent this.

Furthermore, you may prudently factor in potential claims in matrimonial or bankruptcy proceedings against the recipient of the property.  The real fear here is that the beneficiary may have no choice in the matter when it comes to compromising their interest in the property.  In the event of a marital breakdown the property would be an asset in any divorce settlement and its value lost in whole or in part to the family.  Conversely, a failed business venture or other financial catastrophe would potentially expose a gifted property to creditors.

While the property is in your hands, you may reasonably consider that the chances of this happening are fairly remote.  It is natural for you to feel that any family assets including investment property are far safer in your hands than in anyone else’s.  After all, you built them up and successfully managed them so why give them away and risk it all?

To achieve your objective to pass property to other family members it seems that you therefore must pay some tax upfront, possibly a great deal of tax, which is never attractive.  You would be inviting a tax liability which does not otherwise need to crystallise.  You must also render the assets more vulnerable to an assortment of non-family members who will have completely different agenda’s to your own and may not necessarily have the overall family’s interests at heart.

But is this inevitably the case?


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