Inheritance tax is a levy charged on the estate (property, money, and possessions) of someone who has passed away. In the UK, the standard inheritance tax rate is 40%, but it only applies to the value of the estate above the £325,000 threshold (known as the nil-rate band).
If you leave your home to your children or grandchildren, you may also benefit from the residence nil-rate band – an additional threshold currently set at £175,000 (as of 2024/25). This brings the total tax-free allowance for some estates up to £500,000 per person.
However, with rising property values – especially in London – it's easy for landlords’ estates to exceed this threshold.
Property is considered part of your estate for inheritance tax purposes. If you own multiple properties, their combined value can significantly push your estate over the threshold, leaving your heirs with a large tax bill to pay – often in cash and within six months.
Inheritance tax planning is most effective when started early. The sooner you put strategies in place, the more options you’ll have – from gifting property to restructuring ownership.
You can gift property during your lifetime. If you live for seven years after making the gift, it’s usually exempt from IHT under the “seven-year rule.” However, this comes with conditions and implications, such as capital gains tax, so it’s best to seek professional advice before gifting.
Placing property in a trust can help remove it from your estate for IHT purposes. Trusts can be complex and subject to their own tax rules, but in some cases, they provide long-term protection and control over how assets are distributed.
Although residential rental property typically doesn’t qualify for BPR, furnished holiday lettings and certain property-based businesses might. This could reduce IHT liability by up to 100%. Again, specialist advice is recommended.
A life insurance policy written in trust can be used to cover the inheritance tax bill, giving your heirs immediate access to funds without needing to sell property to pay the tax.
At Hemmingfords, we work with landlords across North London to not only manage their property portfolios, but also help them plan for the future. While we’re not tax advisors, we regularly point clients in the right direction and share helpful resources like this one to guide their decision-making.
Inheritance tax doesn’t have to derail your long-term plans. With the right strategy in place, you can pass on your property portfolio in a tax-efficient way – and make sure your loved ones benefit from the legacy you’ve worked hard to build.
If you’d like to discuss your property goals or explore your options, we’re here to help.
Get in touch with us at hello@hemmingfords.co.uk – we’d be happy to connect you with trusted professionals who can offer tailored advice.
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