Successful property investors might find themselves in a situation where the value of their properties is increasing, their mortgages are being paid off and their personal wealth is consistently growing.

This might all sound like a perfect position to be in, but it hides significant consequences for your portfolio if you wish to pass it down to the next generation.

A capital wealth over £325,000 is subject to a 40 per cent Inheritance Tax (IHT) upon death. This means that the beneficiaries of those who have property portfolios over this threshold face the prospect of losing almost half of the property and personal wealth that was intended to be passed down.

Assuming you want to pass down as much of your wealth as possible, it might be time to start looking into alternative solutions for the future of your property portfolio.

Which taxes do you have to pay?

An estate valued over £325,000 is liable for IHT. However, there are some further reliefs that can help property owners.

For example, the Residence Nil-Rate Band (RNRB), which is currently set at £175,000, is a further relief from IHT.

This means that, in practice, your estate will not be charged IHT until it reaches half a million pounds in value, as long as your main residence is worth at least £175,000.

Contact Rotherham Taylor’s tax experts for more information on your tax requirements.

Passing your portfolio to your spouse

If you pass your estate, including your property portfolio, to your spouse, there will be no IHT due on death.

When passing your entire estate to your spouse you do not use your nil rate bands and the allowance can be passed to your spouse to be used on their death. When they die, therefore, they will be able to pass on up to £1 million before IHT comes into effect.

If you don’t leave all your estate to your spouse and use some of your nil rate bands then only the remainder will be available for use on your spouse’s death.

Gifting your portfolio

Giving your property portfolio away as a gift, whilst alive, means that, whilst you may avoid IHT in some cases where the gift is made seven or more years prior to death, you will usually have to pay Capital Gains Tax (CGT).

This is HMRC’s way of preventing sudden gifting of property, just before the death of the owner, as a way of avoiding tax.

Whilst no one can predict the date of their own death, if you wish to transfer the ownership of one or more of your properties it is best to have a tax-efficient strategy to do this.

Getting early advice from one of our chartered accountants can help prevent a significant IHT bill in future.

At Rotherham Taylor our accountants are experts at answering probate, Inheritance Tax and estate related queries. Get in touch today or click here to view our probate services.