Property estate planning and inheritance tax

In this guide

In this chapter, we'll look at estate planning and the differences between personally owned and company owned property.

If you’re planning on passing your property investments to your family in the future, it’s worth planning for inheritance tax with your accountant as the liabilities differ between privately owned and company owned property.

What is Inheritance Tax (IHT)?

Inheritance tax (IHT) is a tax based on an estate’s value after a person has died. If you own property in your personal name, the value of the property will count towards your estate.

How much is IHT?

The standard inheritance tax rate is 40%, and this is charged on the part of the estate that is above the threshold of £325,000.

There are reliefs, exemptions and reductions available to reduce the rate of inheritance tax that is due. It’s certainly worth having a conversation with your property accountant to plan for IHT if you are planning on gifting your privately owned property to your family.

What is the IHT "7-year rule"?

The ‘7 year rule’ is in place to taper the tax on gifts made between 3 and 7 years before your death.

Inheritance Tax taper relief rates

Years between gift and death	Tax paid
less than 3	40%
3 to 4	32%
4 to 5	24%
5 to 6	16%
6 to 7	8%
7 or more	0%

Limited company owned property

Pro Tip

Limited companies will give you more options when it comes to planning inheritance tax. You’ll need a suitable shareholder structure so speak to an accountant to get the right one in place for your strategy.

If you're investing to leave a legacy for your family, it’s much simpler to transfer a limited company (shares) than a privately held property.

Depending on your plans, you could add your children or grandchildren as shareholders in your company.

As the property remains owned by the company, it could also be protected from some stamp duty, inheritance tax and capital gains tax liabilities.

Pro Guide:

An Introduction to Property Tax

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