£2.5 million in property equity, yet £30,000 a year short of living costs
This is a case study of a 72-year-old landlord who had built substantial wealth, but was using his savings to pay for everyday life and could not afford the inheritance tax planning he wanted. A conversation with his children added another reason to reconsider his property portfolio.
I want to share a real client story because I suspect quite a few landlords will recognise something of themselves in it. I will keep his identity confidential, but the circumstances are worth explaining.
He first came to Property118 after reading an article about an investment outside property on which I was receiving a 10% fixed return. He had £300,000 in the bank, so he contacted the people who had arranged the investment for me, obtained the information and went away to consider it. He did not proceed.
Some time later, he read another of our articles, this time asking the question “Could your family afford to keep your property portfolio after you die?” This resulted in him obtaining a quotation for Whole of Life insurance written into trust to provide the money to pay inheritance tax. He was just over 70, in good health, and concerned about an estimated £1.5 million inheritance tax bill. The quotation he obtained was approximately £3,000 a month, or £36,000 a year. Again, he went away to think about it.
It was only when he subsequently booked a Property118 consultation that the reasons for his hesitation became clear.
He explained that he had approximately £2.5 million of equity in his rental portfolio, after deducting the mortgages. It was producing nearly £90,000 a year before tax, but the amount he was left with after tax was only about £30,000. His living costs were £60,000 a year.
The Section 24 restrictions on finance cost relief were only part of his predicament. As many landlords know only too well, mortgage interest is no longer deducted when calculating taxable residential rental profits for affected individuals. A restricted basic-rate tax reduction takes its place, which can leave a considerable gap between the profit you actually make and the income on which tax is calculated.
That £300,000 in the bank now takes on a rather different significance. He was £30,000 a year short of what he needed to live on. In his mind, the savings would cover that shortfall for another ten years, assuming his income and spending stayed much the same. Of course, living longer, inflation or an unexpected expense could change that calculation.
You might reasonably think that a 10% return on £300,000 would produce the missing £30,000. He had considered that too. However, the return would be taxable, and he was worried about how much he would actually receive after tax. He also needed access to the capital. Committing the money he relied upon for everyday living was a very different proposition from investing spare cash.
Meanwhile, the inheritance tax concern went well beyond the rental portfolio. There was a valuable main home, a holiday home and other assets, as well as a pension fund to consider in the wider planning. Most unused pension funds and pension death benefits will come into the inheritance tax calculation for deaths from 6 April 2027, so the timing and the particular pension arrangements matter too.
He wanted to protect his children from a substantial tax bill, but the £36,000 annual insurance premium was more than the entire £30,000 he was retaining from his rental business. He was already using his savings to support himself. He felt asset-rich, cash-poor, and was beginning to feel that he had somehow failed. The Whole of Life premium was due to him being in his 70’s, and still in good health.
I can understand why he felt trapped. He had accumulated substantial wealth, yet neither of the opportunities he had investigated seemed affordable when considered against his existing income.
Our consultant drew his attention to what the £2.5 million tied up in the rental portfolio was actually producing. Nearly £90,000 before tax represented an income return on equity of approximately 3.6%. The £30,000 he retained was just 1.2%. Capital growth might add to his wealth, but it would not pay the bills unless he found a way to release it.
That opened up the possibility of selling the rental properties, even allowing for the capital gains tax. For the purposes of the discussion, suppose he was left with £1.5 million after repaying the mortgages, allowing for any discounts needed to sell, and paying the selling costs and CGT. Add the £300,000 already in the bank and he would have £1.8 million to work with.
At an illustrative 10% annual cash return, £1.8 million would produce £180,000 a year before tax. To give that some context, a UK individual receiving £180,000 solely as taxable interest, with no other income, would retain roughly £114,000 under 2026/27 tax rules, including the applicable savings starting rate. That would cover £60,000 of living costs and £36,000 of insurance premiums, with about £18,000 remaining.
Those figures explain why the possibility was worth exploring. He would need an FCA-authorised adviser to assess suitable investments and insurance, and to test whether the plan remained affordable with lower returns, fees and rising living costs.
Then there was the conversation with his children, which I think is a particularly important part of this story. They told him they did not want to inherit the rental portfolio anyway.
They considered the return diabolical given the risks their father faced and the increasing burden of legislation. They did not want to have to deal with probate involving an illiquid rental portfolio, the mortgages, or the pressure that could put them under. They much preferred the prospect of him releasing the equity and arranging his affairs so there would be money available to pay the inheritance tax.
In their minds, within a year of his death they could have the tax dealt with and be enjoying the benefit of what remained of his estate. That was their expectation, rather than a timetable anyone could guarantee. The tax itself normally falls due by the end of the sixth month after death, so the funding would need to be available earlier.
A suitable Whole of Life policy in trust could provide that money without waiting for probate, subject to the policy terms and premiums being maintained. The purpose would be to fund the bill, and the amount of cover needed would have to be reviewed after any sales. His home, holiday home and the rest of the estate would still need administering, but the children would be spared taking on a rental business they had already said they did not want.
There is still detailed work to do before an option discussed in a consultation becomes a plan someone can act upon. Actual sale proceeds, tax and suitable investments all need checking, and selling part of the portfolio or reducing borrowing may also be worth considering. The client remains the person who decides what he wants to do.
For me, the point is that a large capital gains tax bill should be weighed against what the money left afterwards could achieve. If retaining the properties means continuing to use up savings, struggling to fund family protection and ultimately leaving the children a business they do not want, the cost of selling deserves to be considered in that wider context.
He had built considerable wealth. It was entirely reasonable to look again at how that wealth could support his own life and benefit his family. I think many landlords would find that a useful conversation to have, particularly with their children.
If this sounds familiar, you can arrange a Property118 consultation to discuss your circumstances and the options to explore. It helps to start with what you need to live on, what you own, what you owe, your taxable income, and then what you want to retain and what your family would actually like to inherit.
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1 comment on this article
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The rules have changed but we haven’t stopped selling properties
Member Since January 2011 - Comments: 12274 - Articles: 1497
9:45 AM, 5th November 2026, About 7 minutes ago
The following comment was sent to me by a close friend, after I had privately shared the above explainer video with him via WhatsApp, to ask for his feedback:
Hi Mark, thanks for sending the video. Really interesting, and ironically, just before you sent it, I was having almost exactly the same conversation with another portfolio landlord.
He’s actually a little older than me at 60, another 18 months, and we are there, lol, but he is in precisely that position. Asset-rich, with substantial equity tied up in property, but very cash poor and struggling to make the numbers work each month.
It really resonated with me because, as you know from all our conversations about my own situation, I’ve experienced pretty much everything discussed in that video, probably on a much larger scale!
I don’t need to go over my own circumstances again, as you know the figures and the history only too well. But I think my experience really highlights the problem. You can have a substantial property portfolio and plenty of equity on paper, but that doesn’t necessarily translate into money in the bank or financial freedom. In fact, it can be quite the opposite.
As we’ve discussed previously, the combination of Section 24, leverage, interest costs and the tax situation has been incredibly damaging. I’ve effectively watched a substantial amount of my personal savings disappear just dealing with tax liabilities, despite the underlying economics of the portfolio being so different from the taxable position. It’s been hugely frustrating, particularly when you consider the amount of time and effort that has gone into building everything.
I’ve been trying to get this message across to other landlords for some time now. Sometimes you just have to take it on the chin, pay the capital gains tax, release the equity and put that money to work somewhere more beneficial. There’s no point holding on to property simply because you’ve always held property.
In fact, I’ve just spent over an hour talking to this particular landlord about exactly that. How he could restructure, sell certain properties, release capital and put himself in a much stronger financial position. He’s struggling financially every month despite having substantial wealth tied up in property. It seems crazy when you step back and look at it objectively.
I also think there’s a bit of an elephant in the room when it comes to landlords and property portfolios, and that’s ego. And I’m as guilty as anyone!
For years, it was almost a badge of honour to say, “I’ve got 100 properties” or “I’ve got 150 properties”. You felt you’d achieved something, and there was always that mentality of buying more, building the portfolio and growing the numbers. We all enjoyed that feeling and, to a certain extent, our identities became wrapped up in how many properties we owned.
But the reality is that, as you get older, your perspective changes. What once felt like an achievement can suddenly start to feel like a noose around your neck. All those properties come with mortgages, tenants, maintenance, compliance, agents, refinancing and an endless stream of things to deal with. What was once something you were proud of can eventually become something you desperately want to dispose of.
I think that’s quite a difficult thing for some landlords to accept. There’s almost a feeling that selling up is admitting defeat, when actually it could be the most sensible financial decision they’ve ever made.
We’ve spent years being conditioned to buy more, leverage up, accumulate assets and wait for property values to increase. But there comes a point when the strategy has to change.
Not to sound negative, but at 58, I haven’t necessarily got another 10 or 20 years to sit around waiting for property values to double, or the energy. More importantly, I’m increasingly conscious that time and health are probably the two most valuable assets you have as you get older. Money is important, of course, but what’s the point of spending the best years of your life managing a huge property portfolio, worrying about cash flow and constantly dealing with problems?
I’d much rather release some of that wealth, have the freedom to enjoy life with Jo and the family, spend time with the children and create some memories while we’re all fit and healthy enough to enjoy them.
And that’s another important consideration. Our children don’t necessarily want to inherit a huge property portfolio with all the responsibilities, financing and administration that comes with it. I’d much rather release some of that wealth during our lifetime, enjoy it together and create memories, rather than leave them a complicated portfolio and potentially enormous inheritance tax liabilities to deal with.
I actually think landlords seriously underestimate how much of a burden they could be leaving behind.
The other thing your video highlights is how misleading equity can be as a measure of wealth. You might have £2.5m in property equity, but if you’re heavily leveraged, cash flow is tight and you’re constantly feeding the portfolio, how wealthy are you really? You can be asset-rich but financially constrained.
For me, it’s been a death by a thousand cuts. Mortgage interest, Section 24, taxation, compliance, maintenance, refinancing and all the other costs. Collectively, they can completely erode the returns and, more importantly, the enjoyment of being a landlord.
I actually think the figures in your video could be considerably worse for many landlords, particularly those with leveraged portfolios. They might have substantial equity on paper, but are effectively haemorrhaging money every month.
Anyway, really good video. Nice and simple, but it makes a very important point. I think there are a lot of landlords who need to take a step back and seriously question whether holding on to everything is actually the right strategy anymore.
I know my own priorities have changed considerably. I’m much less interested in how many properties I own and much more interested in how much freedom I have, how much money I can actually enjoy and how much time I have to spend doing the things I want to do.
Perhaps that’s the biggest lesson. When you’re younger, you spend your time trying to accumulate wealth. As you get older, you realise that time is the one thing you can’t accumulate, buy back or get more of.
Sometimes the best investment decision is knowing when to stop buying, start selling and actually enjoy what you’ve spent a lifetime building. ⛵😎