DBF are a class act. We used them for the sale of a house. Professional, clear and responsive. Craig and Belinda who handled our case were great. Nothing was too much trouble, responsive and easy to get hold of.
Dave Weston
Recent changes to the Inheritance Tax regime make early succession planning increasingly important for property owners who wish to preserve wealth and pass a portfolio to the next generation. Without a coordinated plan, an estate may face a substantial tax liability, and beneficiaries may have to sell properties to fund it.
The continued freezing of tax thresholds is bringing more estates within the scope of Inheritance Tax (IHT). IHT is generally charged at 40% on the value of an estate above the available allowances. The nil-rate band is £325,000, and a residence nil-rate band of up to £175,000 may also apply where a qualifying home passes to direct descendants. The residence nil-rate band is tapered for estates worth more than £2 million.
From 6 April 2026, 100% Agricultural Property Relief and Business Property Relief will be limited to the first £2.5 million of combined qualifying property. Qualifying value above that limit will generally receive 50% relief, resulting in an effective IHT rate of up to 20%. Any unused portion of the £2.5 million allowance will be transferable to a surviving spouse or civil partner, potentially allowing a couple to pass on up to £5 million of qualifying assets with 100% relief, in addition to the ordinary nil-rate bands.
These reliefs will not ordinarily protect a buy-to-let or investment property portfolio. Business Property Relief is generally unavailable where a business consists wholly or mainly of making or holding investments, and incorporation alone does not change the underlying nature of those activities. Property owners should therefore assume that an investment portfolio remains exposed to IHT unless specialist analysis confirms that the business satisfies the conditions for relief.
In some circumstances, it may be possible to restructure a property business so that the wider group carries on sufficient qualifying trading activity for Business Property Relief to become available. This is highly fact-specific: the nature, scale and organisation of the group’s activities will be critical, and any restructuring should be undertaken only after specialist legal and tax advice.
Using a Property Investment Company
A property investment company, sometimes established as a family investment company, can nevertheless be a useful succession-planning vehicle. Different share classes can separate voting control from economic ownership, enabling the founder to retain control while transferring non-voting or growth shares to family members. Subject to the relevant rules, the value of an individual’s shares can be frozen, and new shares can then be issued to allow for future growth to accrue outside the founder’s estate. Shares can also be transferred gradually without dividing ownership of the underlying properties, helping to preserve the portfolio and ensure continuity of management.
A company structure is not an automatic IHT exemption. Shares retained by the founder remain part of their estate, and a company carrying on a property investment business will not usually qualify for Business Property Relief. Moving an existing portfolio into a company may also trigger Capital Gains Tax, Stamp Duty Land Tax or the relevant devolved property tax, refinancing costs and lender-consent requirements. A company therefore works best as a long-term vehicle for governance, investment and phased gifting after the tax and commercial consequences have been fully assessed.
Lifetime Gifting and Other Options
For many owners, a planned programme of lifetime gifting may be an effective alternative. An outright gift to an individual will generally fall outside the donor’s estate if the donor survives for seven years, and gifts can be phased so that sufficient capital and income are retained. The donor must genuinely give up the benefit of the asset: continuing to occupy a gifted property rent-free, for example, may leave it within the estate as a gift with reservation. A transfer may also give rise to Capital Gains Tax, Stamp Duty Land Tax, mortgage issues and a loss of control or rental income.
How We Can Help
We can work with property owners and their families to develop and implement a succession plan tailored to their objectives. This may include reviewing the ownership and operation of the portfolio, coordinating tax advice and valuations, updating wills and lasting powers of attorney, advising on lifetime gifts, trusts and family investment companies, preparing shareholder agreements and appropriate share rights, and documenting transfers. Where a wider business restructuring is being considered, we can also work alongside specialist tax advisers and accountants to assess eligibility for Business Property Relief and manage the legal steps. Regular reviews allow the plan to adapt to changes in the family, the portfolio and the tax legislation.
