10 Tax questions every property owner should consider

Are you building value with your property portfolio or building a tax liability? Nest egg or tax headache?

If you're receiving a steady flow of rental income from your property portfolio, it can often be easy to overlook the legal and taxation consequences for you and your future heirs. It's worth taking a step back to ask yourself: do you understand the following? If not, it is time to sit down with an adviser to review your portfolio and wealth management strategy.

If any of the questions below prompt you to reconsider your current arrangements, our Private Client Solicitors can help.

1. You pay inheritance tax (IHT) on the value of all your assets on the date of your death. IHT is a 40% charge. Are you able to calculate your own IHT exposure?
2. Some businesses qualify for a valuable relief from IHT called ‘Business Property Relief’ (BPR), which means they may avoid IHT on assets up to a value of £2.5 million. Not all businesses are eligible. Is yours? Anyone with property in their name needs to understand what IHT reliefs, if any, are available to reduce their IHT exposure.
3. Capital gains tax (CGT) is a tax levied on an increase in value in an asset/property (other than cash) when you either sell the asset or property or give it away. There are certain valuable exemptions, for example, transactions involving the home that you own and live in. Are you CGT savvy enough to know whether a gift of a valuable rental property to your heir will attract a CGT bill that you need to settle within 60 days with HM Revenue and Customs?
4. CGT is wiped out on death, at which point property assets are reset to their market value at the date of your death. Can you use this valuable exemption to your advantage?
5. Are you aware of the advantages of making transfers to a spouse which are exempt from IHT and CGT?
6. Do you understand how to make gifts of your assets for IHT planning purposes if the 40% future charge concerns you? In particular, if you have come to rely on receiving the rental income, how do you avoid the pitfalls of retaining a benefit in a property which you also wish to avoid being taxed on?
7. Have you heard about the seven-year rule for making gifts? Do you know what it means for you and your heirs?
8. Has a trusted adviser mentioned placing your properties into a limited company and, if so, do you understand the advantages of that (if any) for your family?
9. Is Stamp Duty Land Tax relevant for you?
10. Have you compared the potential CGT and IHT costs? CGT is usually 24% on the gain in value in a property. IHT, in contrast, is a 40% charge on the whole value of an asset retained in your name at your death. It can often make financial planning sense to pay a CGT bill during your lifetime to avoid a 40% IHT charge on your death.

At Pearson Solicitors, we work with landlords on their wealth management and estate planning strategies, helping them consider their tax position, protect their wealth and plan for the future.

How we can help?

Our experienced private client solicitors can review your circumstances, identify potential areas of concern and discuss practical steps that may help reduce your tax exposure and protect your family's future. Contact our Private Client team today on 0161 785 3500, or email enquiries@pearsonlegal.co.uk.

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.