We know how worrying it can be when wealth is tied up in bricks and mortar rather than cash. Many families face a short window to settle a bill after someone dies, while selling or refinancing a home can take months.
In this short guide we set the scene and explain clear, practical steps that can lower exposure and protect your family legacy. We cover gifting, trusts, limited companies and simple cash-flow planning.
Our aim is to give straightforward, easy-to-understand estate information and to help readers spot which options may suit personal circumstances. If you want deeper reading on practical tips, see seven practical tips and a wider planning overview at estate planning for portfolios.
Key Takeaways
- Properties are illiquid and can create a cash shortfall when liabilities arise.
- Simple steps like gifting or trusts may reduce exposure over time.
- Company ownership and share planning suit some portfolios but need careful setup.
- Life cover can provide quick funds to settle any bill within six months.
- We recommend tailored professional support as rules and reliefs change.
Why buy-to-let property is a hotspot for Inheritance Tax in the UK
A portfolio of rental homes can quickly turn into a financial squeeze for grieving families. High asset values sit alongside little cash. That mismatch creates risk when bills fall due.
Investment business vs trading business
HMRC usually treats buy-to-let as an investment business, not a trading business. That matters because Business Property Relief rarely applies to passive property holdings.
In practice, most landlords miss out on this relief. The result is higher exposure on the estate’s value and a bigger potential bill.
Six months and the cash-flow squeeze
IHT can be due within six months of death. Probate, valuations and sales often take far longer.
Families then face tough choices: sell quickly, refinance, use savings or borrow short term. Each option has costs and stress.
When keeping the property still makes sense
Keeping a property can be right in some estates. Strong rental demand, only a couple of units, or high disposal costs may mean retention suits family goals.
We focus on net value of the estate — price after mortgages and liabilities — when thinking about how much heirs may need to pay tax and how best to plan in time.
How Inheritance Tax, Capital Gains Tax and rental income tax interact for landlords
One move—selling, gifting or restructuring—can trigger several different charges at once. We map the way estate duty, cgt and income levies overlap so you can plan with fewer surprises.
Key thresholds and capital gains basics
The main nil-rate threshold is £325,000 per person. Above that, the standard rate is 40% on estate value.
The CGT annual allowance is £3,000 in 2025/26. Residential rates are 18% and 24% depending on your rate band. UK residential property disposals must be reported and paid within 60 days.
Income on rentals and allowable costs
Rental income is taxed on profit at 20%, 40% or 45%. You can deduct repairs, insurance, council tax (if paid by the owner) and letting fees. Mortgage interest relief for an individual is limited to a 20% credit.
| Charge | Key allowance | Typical rate | Timing / note |
|---|---|---|---|
| Estate duty | £325,000 (per person) | 40% | Payable on value above threshold |
| Capital gains | £3,000 (2025/26) | 18% / 24% residence | Report & pay within 60 days |
| Rental income | Allowable expenses | 20% / 40% / 45% | Profit basis; mortgage credit capped |
| SDLT | Nil where applicable | Varies by price | Due within 14 days of purchase |
Practical change to watch
Holiday let rule changes from April 2025 remove certain reliefs and align holiday units with standard rental rules. That shift matters for future planning and can alter the balance between an immediate sale and holding property.
inheritance tax advice for buy to let landlords uk: gifting strategies that reduce your estate
Gifting property can be a powerful way to reduce an estate’s exposure, but the rules matter. We explain the practical steps and the records that make gifts robust if HMRC questions them.
Potentially Exempt Transfers and the seven-year rule
An outright transfer usually becomes a Potentially Exempt Transfer (PET). If you survive seven years after the gift, the gifted value can fall outside your estate for inheritance tax.
But the gift must be genuine. If you still benefit or control the asset, relief can fail.
Annual allowances and small gifts
Use the £3,000 annual exemption and the £250 small gift rule. You can carry the £3,000 forward one year if unused.
Regular small gifts chip away at estate value without complex paperwork.
Gifts from surplus income
Gifts from surplus income are exempt when they are regular and do not reduce your usual standard of living.
Keep clear records of income, outgoings and the payment pattern. That evidence matters.
Mortgaged transfers and Stamp Duty Land Tax
If children take on a mortgage, HMRC may treat that as consideration. That can trigger Stamp Duty Land Tax and create a liability.
Capital gains on gifts to children
Gifts of property trigger capital gains calculations at market value. Gifts are not exempt from CGT when given to children.
One approach is to stage transfers over years so you use annual allowances and limit gains in any single year.
- Decisions to ask: Do we need the rental income? Is the mortgage portable? Can children cover costs?
- Practical step: Keep good records and consider staged transfers rather than a single move.
- Where to read more: See our inheritance tax and capital gains guidance for deeper detail.
Using trusts to protect assets, control access and reduce Inheritance Tax liability
Trusts can give you control and calm when an outright gift feels too risky. They let trustees manage property and decide when children or vulnerable beneficiaries benefit. A trust can protect against rushed decisions, relationship splits and poor money choices.
- When a trust fits: if heirs are young or need safeguards, a trust keeps assets secure while income may still pay household costs.
- Discretionary trusts: trustees choose who benefits and when — offering flexibility and protection.
- Numbers to know: certain lifetime transfers sit within a £325,000 band per person over seven years; amounts above that can trigger a 20% lifetime charge.
- Gift with Reservation: keep rental income after gifting and the property can remain in your estate. That risk matters if you still need that income.
Trusts bring ongoing administration and choices about trustees, minutes and records. For a practical overview of how trusts can shield assets, see our guide on trusts and protection. We recommend planning carefully and documenting decisions so the arrangement matches your purposes and years of planning ahead.
Limited company planning for rental properties and estate transfer
Holding property through a limited company can create extra flexibility — but it often brings immediate costs that matter.
When incorporation helps — and when it hurts
A company can let you pass value via shares rather than moving whole properties. That makes staged transfer and control simpler for many families.
However, incorporation can trigger upfront CGT and Stamp Duty style charges. This is why careful planning matters before any transfer.
s.162 Incorporation Relief
Some portfolios qualify for s.162 Incorporation Relief. Typically that means a genuine business with a suitable level of activity and a number of properties.
If you meet the tests, s.162 can defer CGT on incorporation. Prove-it-properly checks are common, so keep strong records.
Shares, control and keeping an income
Passing shares lets you separate voting control from income rights using different share classes. That protects the business while you hand over capital value.
You can also stay paid through a salary or sell shares in instalments to supply ongoing income. Document commercial terms and timing carefully.
Company trade-offs
Company profits face Corporation Tax and dividends carry tax above the £500 dividend allowance (2025/26). A company also loses the individual CGT annual allowance.
Decision checklist:
- How many properties do you own?
- Do you need regular income or want to retain profits?
- Will you reinvest or extract capital?
Professional advice is essential. The wrong move can create extra tax and legal costs that are hard to reverse.
Conclusion
Small, steady steps taken years ahead often beat last-minute fixes when values, rules and family needs collide.
Start early and review your plan regularly. A mix of gifting, trusts, company structures and insurance suits different aims and income needs.
Watch timing: seven-year rules, CGT reporting deadlines and the six-month payment window shape what is practical. Look at the whole estate — properties, pensions and cash all interact when heirs settle matters.
We recommend getting professional advice and treating planning as a living process. Gather portfolio details, mortgages, income needs and beneficiaries, then speak to an adviser to pressure-test options. Learn more about local help at inheritance tax planning in Reading.