Half a million landlords face inheritance tax ‘time bomb’

One in five people who rents out property has a portfolio that will fall victim to allowance freeze

ONE in five landlords in England faces paying hundreds of thousands of pounds in death taxes because of the government freeze on allowance thresholds, analysis shows.

More than half a million buy-to-let investors have a portfolio that exceeds the Government’s inheritance tax threshold, according to estimates from accountants RSM, with “accidental” landlords particularly at risk.

Chris Etherington, of RSM, said:

“There is a ticking tax time bomb waiting for the next generation and there is little they can do about it. Thousands of families will not be able to meet a 40 per cent liability without selling up.”

The Telegraph is campaigning to scrap the divisive 40 per cent death duty, and more than 50 MPs have so far backed the move.

The widely unpopular levy is charged at 40 per cent on wealth over the £325,000 threshold, which has been frozen since 2009.

James Wood, of the National Residential Landlords Association, said a rising number of buy-to-let investors risked being caught out.

“It is another way in which the current tax regime is just not suitable for landlords,” he said. Inheritance tax is going to hit accidental landlords particularly hard – for example, people who have moved in with a partner and kept their previous home are unlikely to be aware of the implications of renting their property and the huge tax bills it could attract.”

A single landlord living in London with an average portfolio of £410,000 and a main residence worth an average of £523,000 faces a potential inheritance tax of £173,200, according to calculations by wealth manager Charles Stanley. This excludes any other cash, investments and business interests.

Mr Wood added that a rising number of landlords were being pushed to incorporate as a limited company to reduce their inheritance tax bill. “[But that] is not an option for smaller landlords,” said Mr Etherington. “Over the past decade we have had smaller landlords being deterred from the market. Now they are also facing the inheritance tax issue on top of everything else.”

He added that if landlords at risk of triggering inheritance tax sold just one property to settle the bill, it could wipe out at least a tenth of the number of rental properties on the market, putting more upward pressure on prices.

Isobel Greenshields, an 80-year-old landlord from Essex, said she felt forced to transfer her property to her granddaughter much earlier than expected in order to avoid a big inheritance tax bill. “You’re making judgments – often bad judgments – because of these inheritance taxes,” she said.

More than 15 years ago, the then shadow chancellor George Osborne pledged to raise the inheritance tax threshold to £1million.

However,it has remained at £325,000 for more than a decade and Jeremy Hunt has now frozen it until 2028. The proportion of families paying the levy has doubled since the freeze.

A spokesman for the Treasury said: “Over 93 per cent of estates won’t pay any inheritance tax – with only the very wealthiest paying more than £7billion a year to help fund public services.

“Landlords will pay less tax thanks to our cuts to stamp duty, and can claim tax relief on financing their property purchase and day-to-day costs.”

£173,200 The average estimated inheritance tax bill for a single landlord in London with a £410k portfolio and a £523k home