Should I sell or risk tenants buying at undervalue price?9:08 AM, 25th September 2019
About 3 weeks ago 48
The UK’s average property value is currently £167,953, according to the Halifax’s latest survey.
It is probably fair to say that every landlord owns at least two properties, their own home plus at least one buy to let property. Therefore, excluding any other assets or life insurance policies, their assets are likely to exceed the £325,000 nil rate band for Inheritance Tax (IHT).
Even if the properties are fully mortgaged now, when the next property cycle completes (historically every 10 to 15 years) the properties are likely to double in value but the mortgages will not. Most buy to let mortgage balances will remain unchanged as they were set up on an interest only basis.
With every property cycle you live through and every buy to let property you own the potential of the IHT problem gets worse.
For example, if your portfolio is worth say £2 million today, you will have at least £2 million of equity when the next property cycle is complete. If history repeats itself and properties double in value every 10 to 15 years, the value of the equity in the portfolio could reach £4 million or more in 20 to 30 years time.
This could result in an IHT windfall for the Tax Man of £1.6 million or more if you were to die at that point.
The alternative is to make provisions now so that your loved ones receive this money instead. It is inevitable that tax rules will change and planning opportunities will be plugged over the years to ensure the government receive these taxes. For this reason it makes sense to take advantage of the tax loopholes whilst the window of opportunity is open. If you wait until your properties have increased in value you may miss the opportunity to save tax.
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