How to save Inheritance tax on property – How a client ended up with a £2m IHT bill

Mar 31, 2022

Dangers of a DIY approach

How to save Inheritance tax on property is becoming a massive concern as the average age of landlords reaches 57 years old.

Meet Ajay. Ajay is 69 years old and is a fantastically successful landlord. He owns 24 properties worth £10.5m. His outstanding mortgage debt is £5m so he has equity of c£5.5m and annual net rental profits of c£150k per annum. Not bad eh..?

Ajay has been doing his own accounts for the last 20 years because, as he said to me..”I knew more than the accountant I last went to and didn’t want to pay for something I could do myself.” Fair point.

However, lately, Ajay (who has 2 adult children who are actively involved in the property business and have a number of properties themselves, and guessed it..he has been doing their accounts too..!)  has started to wonder about inheritance tax. In fact, Ajay has been trawling the internet desperately. He has spoken to any number of “tax advisers” and has realised that maybe he needs professional advice that he can trust. During our conversation, Ajay said he had spoken to a number of so-called property tax specialists. He was worried that they seemed to be promising him a tax-free way to eliminate the Inheritance tax, for an exorbitant fee of course. When he pressed them a bit further on details he realised that the advice was seriously lacking in substance, could not be backed up with actual cases and left him exposed to all the risks. Not something he wanted to worry about and especially not something that he wanted his children to have to deal with.

Property Tax Advisers

One by one we went through all the things he had been told he could do. After reading up on a number of recent developments that we provided him with, together with other evidence, Ajay was shrewd enough to realise that promises of, “no tax, and “using a partnership” or some hybrid variant was not going to work.

We crunched through the figures. The outcome, in our opinion, would mean SDLT of £612k and CGT of £1.3m. All other options would only kick the can down the road for his children, face challenges by HMRC or face rejection by mortgage lenders. By following our advice we were able to recoup the £2m cost, help him with funding and ensured his legacy went to the kids and grandkids. His limited company is now properly structured, Ajay will not pay any income tax for the rest of his life and he can enjoy his time knowing that he has passed on all his hard-earned wealth to his kids and grandkids.

Ajay reckons he saved about £2k per annum in accountants fees over the years. But in the end, it could have cost him £2m in inheritance tax. As I explained to him, whether you’re buying, selling or letting, getting the right tax advice is crucial and could save you £000’s, or as in Ajay’s case £2m.

Use a general accounting firm and you will get general advice. They simply won’t know every relief, tax structure and allowance out there. By the time you realise this, it is often too late and very expensive to rectify poor advice. As for setting up your tax structure so you pay the lowest rate of tax while protecting your property wealth for your kids? Good luck.

Don’t be an Ajay and leave it until you’re 69 to do anything about it.

Fancy a FREE 30-minute consultation?

Speak to me or one of our team of specialist property accountants today to fix up a consultation about how to save inheritance tax on property. Call us now on 01902 711370 or 0800 907 8633, via or via our online contact form.

Let us show you the difference a specialist can make. Ajay and his kids did and Ajay now does what he actually loves doing best. Finding property deals and spending time with the grandkids.

If you found this article on how to save Inheritance tax on property informative then why not check out our guide on residence nil rate band 2021/22 or our other guide to registering a LTD company to buy property?

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