Landlords and Estate Planning

More than one in two landlords with large property portfolios have no succession plan in place, potentially leaving heirs with large inheritance tax bills.

Handelsbanken has found that 52% of landlords with more than 10 properties have no estate management plans, which could force heirs to sell properties to meet these future tax bills.

The Bank’s ‘Landlord Survey Report’ looked at the reasons why landlords were failing to plan for the future.  The reasons included:

  • Not having had the chance to develop a plan yet,
  • It had simply not crossed their minds,
  • Not having anyone to leave their portfolio to.
  • It was not a priority for them
  • It was too complicated.

So, the respondents are using these excuses to sidestep responsibility for what will undoubtedly be the largest business expense of their lives and leave the consequences for others to sort out.  It also strongly suggests that legal and beneficial ownership remains in a single pair of hands at this stage and will continue to do so.

The study also appears to show that landlords with smaller portfolios say they have taken steps to protect their portfolio from estate tax liabilities (without being specific as to what those steps are and whether they are likely to be effective).   An overwhelming majority (96%) of landlords across all age groups with a portfolio of four or five properties say they have long-term succession plans in place, compared to just 52% with more than ten properties. Really!  It is worth bearing in mind that these findings are only what respondents are telling the bank.  The actual position on the ground has not been checked.

Among all those with a clear succession plan in place, most seem inclined to  attempt to convert their portfolio into a property development business to attract business property relief or to acquire agricultural properties to qualify for agricultural relief.  Have a look at my blog post of 2 September 2022 to assess whether you would be inviting an in-depth investigation by HMRC in pursuing this strategy half-heartedly (the answer is almost certainly a resounding YES).

Good luck with that then.

Without detail, this sounds like these proposals are merely aspirations for some distant future rather than something which has been implemented after considerable input and guidance from professional advisers.  It is interesting to observe that both of these idea’s do not involve passing on assets to family members during the respondents lifetime … a reluctance which usually guarantees excessive IHT bills in due course.  It is easy to convince yourself but you need a realistic chance that your executors can convince HMRC that you are entitled to these reliefs when the time comes.

More realistic options include family trusts and family investment companies.  Strangely, these options involve giving away or sharing an interest in the property business which also has many beneficial non-tax benefits

The smart landlords will be those who have done the hard work with trusts and companies over some decades during their lifetimes.  They will gradually be bringing their heirs into the business, not leaving succession as an afterthought.

Have a look at the full report here.  It is a good read!