Landlords urged to resolve succession planning – and avoid IHT bills

Landlords urged to resolve succession planning – and avoid IHT bills

8:05 AM, 31st August 2022, About 2 years ago 1

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There is a ‘worrying lack of succession planning’ among older landlords, with half of those aged 45 or above lacking any long-term management plans, a survey reveals.

The research also reveals that most professional landlords in the UK with large portfolios (52%) have no succession plan in place, risking the future sustainability of their business for the next generation.

The findings, from Handelsbanken, also suggest that more than a quarter (27%) of those with no succession plan said they had not had the chance to develop one yet, while 23% admitted it had simply not crossed their minds.

Around one in five (19%) said that they had no one to leave their portfolio to, while 15% stated it is simply not a priority for them – with the same proportion saying the process was just too complicated.

Landlords with smaller portfolios more likely to have taken steps

According to Handelsbanken’s SME Landlord Survey Report 2022, which surveyed 120 professional landlords with at least four properties, landlords with smaller portfolios are far more likely to have taken steps to protect their portfolio from estate tax liabilities.

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 10 properties, suggesting that those with higher value estates are less concerned about the tax liability facing the next generation.

Among all those with a clear succession plan in place:

  • More than half (54%) plan to convert their portfolio into a property development portfolio to attract business property relief
  • 43% are considering a charitable trust, which would enable the handover of business to their heirs with minimal tax exposure.

Other popular options include:

  • Family trusts (35%)
  • Family investment companies (28%)
  • Acquiring agricultural properties to qualify for agricultural relief (26%).

‘Real need for dedicated financial and tax planning’

Christine Ross, the head of private office (North) and client director at Handelsbanken Wealth and Asset Management, a subsidiary of Handelsbanken, said: “The success of buy-to-let over the past decade has created huge numbers of wealthy landlords – with a real need for dedicated financial and tax planning.

“Property investors with substantial portfolios often defer creating a wealth succession plan but are prompted into action when considering the alternative – the need for their heirs to sell assets to meet the tax liability on death.”

She added: “A plan that includes the use of a family investment company or a trust may carry some initial tax cost, but if put in place early enough, has the potential to create far greater savings over the longer term.”

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7:45 AM, 3rd September 2022, About 2 years ago

I’d be interested to know how this strategy works;
“More than half (54%) plan to convert their portfolio into a property development portfolio to attract business property relief.”

Surely if you’ve owned your BTL portfolio for many years, simply redeveloping all buildings for sale doesn’t turn it into a development portfolio to attract BPR does it? It can’t be that simple?!

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