Building a property portfolio could provide you with an income stream and greater long-term financial security. It can also make your finances more complex, including when you’re deciding how to pass on assets to your loved ones.
With house prices rising, many landlords could find their estate may be liable for Inheritance Tax (IHT) when they pass away, even before they consider other assets.
Yet, it’s not something many landlords have considered or taken action to mitigate. It could leave your beneficiaries with an unexpected tax bill to manage and pay.
It’s often possible to reduce a potential IHT bill if you’re proactive. So, while it might be difficult to think about passing away, creating a plan could be beneficial.
A third of landlords have not considered Inheritance Tax
According to a March 2025 report from the National Residential Landlords Association (NRLA), a third of landlords have not considered their future IHT liabilities at all. In London, the figure rises to 43%.
Even among those who have considered IHT, many aren’t acting. Just 20% of landlords are seeking advice on how they can manage future IHT liabilities.
Leaving IHT for your beneficiaries to organise might seem like a sensible option. However, it could result in them dealing with complex affairs and making important financial decisions at an already difficult time.
A lengthy probate process could also mean it’s months before they receive their inheritance, which may place some families in a financially vulnerable position.
Thinking about IHT now could reduce the bill and make the probate process easier for your loved ones.
Inheritance Tax is due if the total value of your estate exceeds key thresholds
To understand if IHT is something you need to consider, you need to start by calculating the value of your estate.
Your estate covers all your assets, not just your property portfolio. So, you might need to consider the value of your savings, investments, and material items too.
In the 2025/26 tax year, the nil-rate band is £325,000. If the total value of your estate is below this threshold, no IHT will be due.
In addition, most individuals also benefit from the residence nil-rate band if they leave their main home to children or grandchildren. For the 2025/26 tax year, this is £175,000.
If you’re married or in a civil partnership, you can pass on unused allowances to your partner. As a result, when you’re planning as a couple, you could leave assets worth up to £1 million before IHT is due.
£1 million might seem like a lot, but, according to the Halifax House Price Index, the average home was worth more than £296,000 in March 2025. A property portfolio doesn’t need to be large to potentially attract an IHT bill when you pass away.
Importantly, both the nil-rate band and residence nil-rate band are frozen until April 2030. So, even if your estate’s value doesn’t exceed the threshold now, it could in the future if the value of property or other assets rises.
The portion of your estate that exceeds these thresholds will normally be liable for IHT at a standard rate of 40%, leaving your loved ones with a potentially hefty bill.
6 ways landlords could potentially reduce an Inheritance Tax bill
1. Gift assets during your lifetime
If you want to leave property or other assets to loved ones, you might want to consider passing on assets during your lifetime.
This seems like a simple solution, but there are some implications you might need to weigh up, including:
- Gifting might affect your income and long-term financial security.
- Some assets may be considered “potentially exempt transfers” and be included in your estate for IHT purposes for up to seven years after they were given.
- Passing on assets during your lifetime could lead to a Capital Gains Tax bill.
As a result, seeking professional advice is recommended.
2. Hold property in trust
Placing assets, including property, in a trust may remove them from your estate for IHT purposes while allowing you to retain control over how they’re managed.
However, trusts aren’t the right option for everyone, and there are other tax considerations you’ll need to weigh up.
For example, in some cases, on the 10th anniversary of the date the trust was set up, it may be liable for IHT at a maximum rate of 6% if thresholds are exceeded. This would be repeated every 10 years. So, you might benefit from a lower rate, but the charge is recurring.
Trusts are complex and it’s important to ensure it’s the right option for you before you proceed. Taking legal and financial advice could help you weigh up the pros and cons, as well as consider alternative solutions.
3. Set up a limited company
Holding your property portfolio within a limited company could be beneficial from a tax perspective if it’s structured correctly.
Your business may be eligible for Business Relief, which could reduce IHT. To qualify, your property portfolio will need to be managed as a business rather than a passive investment. Once again, seeking specialist advice is important if you’re considering this option.
4. Take out life insurance
Life insurance won’t reduce your estate’s IHT bill, but it could provide your loved ones with a way to pay it.
You’d need to pay regular premiums to maintain life insurance, which would pay out a lump sum to your beneficiary when you pass away. If you choose this option, it’s essential that the life insurance is written in trust, otherwise, the payout could be considered part of your estate and lead to a higher IHT bill.
5. Make charitable giving part of your estate plan
Leaving at least 10% of your entire estate to charitable causes could reduce the IHT rate you pay from 40% to 36%. For some, it could present a way to cut an IHT bill while supporting good causes.
6. Seek tailored financial advice
There are other ways to reduce or mitigate an IHT bill. Arranging a meeting with a financial adviser to talk about your wider assets and long-term plan could be valuable. They may help you identify ways to pass on more of your wealth to loved ones during your lifetime or after you die.
Get in touch to talk about your property portfolio
If you want to talk about growing your property portfolio, we could help you secure a mortgage that’s right for you. We could also refer you to a trusted financial adviser who may work with you to understand your estate’s potential IHT liability and how you might reduce the bill.
Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning, Inheritance Tax planning, or trusts.
Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.
