Feature: Investing in a buy-to-let property
October 3, 2017
Feature: Investing in a buy-to-let property
October 3, 2017
Home Owners
Home Owners

Britain is a nation of home owners, it has become important to us, and our affinity to property extends beyond the home. Since the economic turmoil of 2008 people have turned to property as an investment, as a pension, as a way of holding and building their wealth. We are now a nation of casual, or accidental, landlords.

Through this journey, we roam far and wide for estate agents, within zones 1-3 or commuter hotspots at any rate, and we seek the counsel of our money men to secure the most competitive mortgage and most efficient structure for our income tax.

Britain is also a nation of mild manners, a reserved caution and family tradition – in a, “my children are idiots, but they’re my idiots” kind of way. However, when it comes to our “accidental” property portfolios, or even our very deliberate property portfolios, we seem to have let our reserved caution slip and have jumped in with reckless abandon.

A property portfolio should offer genuine, long-term value for the person creating it, for their family and for future generations. However, if thought and consideration is not given to how you develop your portfolio you could sacrifice 40% when passing it onto your children. And 40% for each generation.

Inheritance tax in the UK is 40% of your assets, after certain allowances are accounted for. Therefore, once your home, car and other assets use up any allowances, your family could lose 40% of your property portfolio on your death. This is often overlooked, ignored or put off until it is too late to do anything about it. Before your children can inherit a thing from your estate, that inheritance tax bill needs to be paid. First! If your property portfolio is worth £2million, can your children raise £800,000 to pay the bill?

Often people will begin to build a property portfolio, and over time with success they can amass several £million in wealth in property. When they begin to approach their 50s or even retirement, they begin to realise that they will never spend the money, they will never need to spend the money, and in fact they have a sizeable estate that they would like to leave to their children.

Often, with a property portfolio, can come a lot of responsibility. Responsibility for upkeep and maintenance, responsibility to look after tenants, occasionally decorate, replace furniture, plumbing wiring, and keep the garden. With a large portfolio this can become a huge undertaking. Therefore, while it may have been your plan to live off the income in retirement, you may find yourself with a full or part time job just keeping on top of it. This could also become a burden for the next generation if they do not share your interest in property.

Therefore, what is the solution?

As with most things, we should think about the end, at the beginning! It is customary in business to start up with a 5-7 year plan to sell. Or perhaps you are beginning with the intention of building something focused entirely around you, to enable you to reap the rewards of your skill or hard work, but without the ambition to grow beyond that. Or perhaps it is your ambition to build a family business that can be passed on to future generations. In each case, you must plan effectively to enable you to get the most benefit from your business.

As with property, the decision should be made as soon as possible and careful planning should be done to ensure that your portfolio will actually be fit for purpose. We can help you structure your “property business” in a way that can mitigate the inheritance tax liability of 40%, so you can avoid that forced Joint Venture with HMRC that will only be bad for business!

If you have already established your property portfolio we can help you structure your “property business” in a way that can mitigate the inheritance tax liability on the ongoing growth and development, as well as addressing the liability that exists today!

If you are building something that you may one day wish to pass on to your family, take the time, step back and give a little more thought to what you have established, why you are developing it and how you can pass on as much benefit as possible to your loved ones.

In any business, you must give thought to personnel, having the right people for the job. Do your children have an interest in property and the ability to manage and build a property portfolio, or will they need help? Who can you trust to be involved? Give thought to the income you may need, the capital you may want access to, think about who is best placed to make the major decisions. We can then help you structure the business in such a way that will enable you to pass on significant wealth from generation to generation, while incorporating all the processes to ensure that your property portfolio and business continues to thrive.

Therefore, whether buying your first investment property, or beginning to give serious thought to the portfolio you are building, get in touch today for a free confidential review of your circumstances.

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