Editor's note: This brief was summarised by The Property AI Newsroom from a report by Property118. Read the original article for full details.
Inheritance Tax and Cashflow Challenges for Landlords’ Families
A report by Property118 highlights that families inheriting property portfolios may face significant financial pressures, despite the apparent wealth on paper. Ongoing costs such as mortgage payments, repairs, insurance, letting costs, and tenant issues continue after a landlord’s death, while executors may also need to pay inheritance tax and obtain probate.
The article notes that property portfolios can contain substantial equity but little accessible cash, which may force families to sell properties or arrange refinancing during a difficult period. Inheriting property is not the same as inheriting cash, and family members may not be familiar with the details of the portfolio, especially if the landlord managed all aspects personally.
Probate can take time, but property business expenses must still be met during this period. Inheritance tax is generally charged at 40% on the taxable part of an estate after exemptions, reliefs, and allowances. The standard nil-rate band is currently £325,000, with a further residence nil-rate band of up to £175,000 available in some cases. Allowances can sometimes transfer between spouses or civil partners, potentially allowing a qualifying couple to leave up to £1 million without inheritance tax, though this is not automatic and depends on several factors.
The article also notes that from 6 April 2027, most unused pension funds and pension death benefits are due to be included in the inheritance tax calculation, which could increase exposure for landlords with substantial pensions.
Property118 has created an assessment tool to help landlords estimate the potential scale of these issues and receive a personalised PDF outlining considerations. The report suggests that landlords may want to consider the level of borrowing their family could support after their death and ensure there is enough working capital to cover ongoing property costs.
Source: Property118