Investment Property Values and how to protect these from Inheritance Tax

It is widely recognized that although most ongoing active businesses are exempt from Inheritance Tax (IHT) upon the death of the owner(s) or controlling shareholder(s), those businesses where the main activity relates to investment property or properties are NOT exempt from potential IHT liability, so how do you protect from inheritance tax?

However, all is not lost. If your investment property business already operates as a Limited Company, it is comparatively inexpensive and simple to remedy this problem. Even if you currently operate as a sole trader or partnership, although this would involve additional tax implications and greater expense, this might still be worthwhile. Especially if you have not owned investment property or properties for a long time.

Whatever your current situation, subject to a thorough cost and viability study before taking any official action, it is possible that you can remove a great deal of property value from your taxable estate, for the benefit of your children, whilst maintaining full control of such property together with full rights to ongoing income from it.

In essence, the person whose estate is currently liable to a potential Inheritance Tax liability gifts non-voting rights shares to their children.

In the case of existing Limited Companies already containing investment property or properties, the accountancy, legal and administration costs are minimal, and provided the original shareholder(s) survive for at least seven years after value is gifted away with such non-voting rights shares, the potential IHT liability has been avoided successfully. The operational costs are a fraction of the IHT saved.

If property or properties are currently held as a sole trader or within a partnership, then additional issues of potential Capital Gains Tax (CGT), Stamp Duty Land Charges and conveyancing costs would also need to be considered before confirming if such an arrangement would be financially worthwhile.

Please see our Inheritance Tax page for further details.