Leave behind a professional business that your heirs can inherit intact
You’ll have heard the saying;
“In this world nothing can be said to be certain, except death and taxes.”
And if you’re a portfolio landlord, then chances are you’ve been thinking a lot about taxes lately. Perhaps you have already made changes to your portfolio.
Of course, whilst taxes we can mitigate, death we cannot.
If you die with investment properties, up to 40% of the equity will be paid in tax.
So if you have two children you’d like to leave your portfolio to, Chancellor of the Exchequer Rishi Sunak will be your third child in a 30/30/40 split.
Savvy Sunak indeed.
If however when you die you leave behind a professional property business, then your heirs could inherit the business intact.
You can get 100% Business Relief for Inheritance Tax on:
– a business or interest in a business
– shares in an unlisted company
Though if your landlord business is a limited company, then IHT Business Property relief will not apply to shares unless the company has significant other non-investment activities.
Does it matter what happens to your business when you die?
If you’re running a professional business with a duty of care to the stake-holders, then (perhaps depending a little on your perspective) the answer is yes.
In The 7 Habits of Highly Effective People by Stephen Covey, the second habit is to “Begin with the end in mind.”
With the end(s) in mind, we can do some scenario planning:
What happens if you lose the capacity to make business decisions?
You’ll need a Lasting Power of Attorney (LPA) for your property and financial affairs.
What happens if your would-be heirs are unable to secure mortgages?
What happens if they cannot afford the expected inheritance tax bill?
You’ll need to plan ahead to ensure debt can be managed without a fire-sale.
- Have you considered securing a Life Assurance policy to cover IHT, or the mortgages on your business portfolio?
- This type of cover can be obtained tax efficiently through a protective business structure
And even if Rishi Sunak is not your third child – that is, you are able to pass on the business as a going concern claiming full Business Property Relief; – what would happen if one child doesn’t want to run the business (and wants the money instead), whilst the other wants to continue?
These are just some of the scenarios rental property businesses can typically find themselves in.
This depends on substance and structure, and if you have seen any of our previous presentations, you’ll know that in some circumstances this can be achieved by using a hybrid business model, with IHT typically mitigated within 18 months to 2 years.
If you have an existing portfolio of properties held in personal names, then you could also benefit (on incorporation to the Hybrid Business Model) from:
- No need to remortgage or change title (thus no CGT or Stamp Duty)
- A lender-friendly business structure
- Seamless succession planning and protection from marital break-up
Plus, depending on your business requirements;
- Maximum Tax Rate of 20% payable on your property income, and
- Full relief for finance & mortgage costs (Section 24 Tax Changes)
It is important to remember that the most appropriate solution for managing a property business or portfolio will not always be a hybrid business model, and as always it depends on the exact details of your professional and personal circumstances.
Before making any decisions we recommend you take joined up professional advice to ensure you are best positioned to obtain your goals, be that to maximise the value of your business both today and during your lifetime, and/or ensuring that you can pass on your hard-earned wealth to those you care about most.
As a founding member of Less Tax 4 Landlords and member of our Operational Board, Ben helps coordinate a wide range of services and insights for the PRS.
With an entrepreneurial background in business growth, sales and marketing strategy; his main claim to fame around here is having come up with the company name back in 2015.
He also works closely with experts across the wider financial and professional services industries through his capacity as co-owner and Director of one of the three Less Tax 4 Landlords founding companies; The Key 2 Growth Ltd.
Less Tax 4 Landlords is a specialist multi-disciplinary consultancy service that helps portfolio landlords maximise the commercial benefits of building, running, and growing a recognised professional property business. This is achieved by housing the following services under one roof: Business Planning, Tax Consultancy, Legal Work, Accountancy, Business Succession Planning, Personal Estate Succession Planning and at arm’s length, Financial Advice. By bringing together a wide range of services and expertise, we help you to maximise the value of your business both today and during your lifetime, and to create true inter-generational wealth.
Typically, Less Tax 4 Landlords can help you if you:
- Own rental property in personal names
- Are (or would otherwise be) a higher or advanced rate taxpayer
- Are a portfolio landlord with 4 or more properties and in excess of £50,000 Gross Rental Income, or you have the means, motivation and opportunity to get there and beyond with a protective structure in place
- Are looking to build, run, and grow a professional property business which is capable of being passed on intact to future generations
If you would like to find out if we can help you benefit financially from running a professional property business, take our free initial assessment here.