More than one in two landlords with large property portfolios have no succession plan in place, potentially leaving heirs with large inheritance tax bills.
Handelsbanken has found that 52% of landlords with more than 10 properties have no longer-term estate management plans, which could force heirs to sell properties to meet these future tax bills.
Its 2022 SME Landlord Survey Report looked at the reason why landlords were failing to plan for the future. A quarter (27%) said they had not had the chance to develop a plan yet, 23% admitted it had simply not crossed their minds, while 19% said that they had no one to leave their portfolio to. Meanwhile 15% said this was no a priority for them – with the same proportion stating the whole process was too complicated.
The study shows that landlords with smaller portfolios are more likely to have taken steps to protect their portfolio from estate tax liabilities: an overwhelming majority (96%) of landlords across all age groups with a portfolio of four or five properties say they have long-term succession plans in place, compared to just 52% with more than 10 properties.
Among all those with a clear succession plan in place, more than half (54%) plan to convert their portfolio into a property development portfolio to attract business property relief, while 43% are considering a charitable trust, which would enable the handover of business to their heirs with minimal tax exposure.
Other popular options include family trusts (35%), family investment companies (28%) and acquiring agricultural properties to qualify for agricultural relief (26%).
Handelsbanken Wealth and Asset Management, head of private office (North) and client director Christine Ross says: “The success of buy-to-let over the past decade has created huge numbers of wealthy landlords – with a real need for dedicated financial and tax planning.
“Property investors with substantial portfolios often defer creating a wealth succession plan, but are prompted into action when considering the alternative – the need for their heirs to sell assets to meet the tax liability on death.
“A plan that includes the use of a family investment company or a trust may carry some initial tax cost, but if put in place early enough, has the potential to create far greater savings over the longer term.”
