My procrastination will end up costing my kids £300,000

“Learning from other peoples experiences is much less expensive than making your own mistakes”.

I read that on Property118 several years ago and it has always stuck with me. So, to give something back I’m sharing my story so that other Property118 members don’t make the same huge mistake that I did.

The story begins at around the same time as we entered into the first UK lockdown. My wife and I were just about to complete the incorporation of our property rental business though Property118 and Cotswold Barristers. That’s something we now wished we had done a few years earlier but that will have to be another story for another day. I would also like to add that that the service was superb and it was one of the best decisions we ever made!

At the time we incorporated, the gross value of our properties was around £5 million and our mortgages were just under £3 million. This meant we would soon own £2 million of company shares in our property company as opposed to the same amount of net equity in our properties. In addition to that we also own our home and personal savings that will be exposed to inheritance tax when we die. Moving forwards, the value of the shares in our property company will rise and fall with the capital values of the properties within the company. Either way, we already had an inheritance tax problem and it was only set to get bigger in the longer term.

To deal with this, Property118 recommended us to create a Family Investment Company structure “SmartCo” to freeze the value of our rental property company shares and to accrue all future growth to another class of shares held outside our personal estates. The purpose of this was to ensure future capital appreciation in our properties would no longer add to the pot which the Tax Man would take a 40% share of when we die. That way, our legacy would not be diluted but substantially protected to meet our business continuity plans. Best of all, we would retain full control of our company during our lives.

Given that we were in lockdown, I couldn’t envisage that property values would shoot up in the way they have.

That’s where the procrastination kicked in. I thought it would make sense to defer the decision in regards to our inheritance tax planning.

My prediction was that property values would fall, but I was wrong!

Just recently, we revalued our property portfolio for accounting purposes again and the gross value has risen by an average of 15% to £5.75 million.

That’s another £750,000 which our kids will eventually have to pay inheritance tax on.

Our kids will now have to find an extra £300,000 when the last of us passes away, or we will have to insure our lives for that much more to ensure the money is there for them when it is needed.

I realise now it was stupid of me to attempt to predict property values in the short term and my wife was very pleased to remind me recently that my procrastination will eventually cost our kids £300,000.

I have no idea which way property values will go in the short term, but what I do now know is that my wife and I now have ‘peace of mind’ in the knowledge that our inheritance tax problem will not get any bigger – well in terms of the future growth of our property portfolio anyway.

If we believed the ‘scaremongers’ who predict property crashes every year we would would have sold up years ago. Thankfully though, we don’t pay much attention to them, because for as long as records on property prices have existed they have gone up in value in the long term.  Besides, we have always considered property investment to be a marathon as opposed to a sprint. My wife and I have now been in this business for nearly 30 years and several of our properties are worth 20 times what we first paid for them.

So I do get it right sometimes too 🙂

When we first completed our incorporation I was asked to leave a Testimonial comment, but never got around to it. Now that I have, in the form of this article, I would like to think I have done my bit and helped at least a few people learn from my experiences as opposed to the far more costly option of learning from your own mistakes.

Wishing you all the best

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