Benjamin Franklin’s most famous quote “in this world, nothing is certain except death and taxes” serves as a reminder that when someone dies, there are financial affairs, as well as affairs of the heart, to handle.
Things become more complicated if the deceased owned a portfolio of properties. A portfolio is a collection of dwellings that are/were owned for investment reasons. Most commonly, the owner will have been a landlord, although they may had owned a mix of private rent and holiday homes.
Finding out you have inherited a portfolio of properties can be daunting, especially if you have no experience of the property sector. As well as having several dwellings to think about, there are extra tax implications too. The number one is inheritance - the more properties, the more valuable the estate and the more inheritance tax is payable.
Some property portfolio owners may have been wise enough while alive to protect their portfolio from inheritance tax by making lifetime gifts or transferring the properties into trust, which removes them from the estate. As an executor, administrator or beneficiary, it’s worth establishing if there was a gift of trust transfer.
If not, all the properties in the portfolio will form part of the deceased’s estate and inheritance tax is payable at 40% of anything over £325,000 – a sum that will include the value of all the deceased’s assets, including cash, stocks, shares and valuables.
With multiple properties involved, the inheritance tax bill could be sizeable as when an estate is worth over £2 million – very feasible given today’s house prices - the tax-free threshold starts to diminish, which the ProbateMove team can explain in more detail. Don’t forget, inheritance tax must be paid within 6 months of the estate owner's death.
There are three main options open to those who inherit a property portfolio:
Keep all the properties: if you fancy yourself as a property mogul, go for it! Any income earned from renting properties out will be liable to income tax and the extra pennies may push someone into a higher tax bracket. Considerations will include managing properties, so they are buy-to-let compliant, and the yield – especially if there are still mortgages on the properties that were not paid off as a result of the estate’s settling.
It’s also worth remembering that multiple properties kept as buy-to-let investments will attract a bigger capital gains tax bill when they are sold in the future. Currently, basic-rate taxpayers pay 18% on gains they make when selling a buy-to-let property, while higher and additional-rate taxpayers pay 28%.
Sell some of the properties: it may help to take an objective view of the entire portfolio to establish if it’s making any money. ProbateMove can help with any assessment, taking into account whether the properties are vacant or tenanted, the rents that have been set and any debts that are against each property.
It could be financially prudent to sell the loss-leading or most problematic properties, leaving you with an easier-to-manage selection of buy-to-lets. Offloading some of the properties may be essential if the estate needs money to settle any inheritance tax bill.
Sell all of the properties: buy-to-let for the uninitiated is overwhelming, time consuming and, quite frankly, scary. Unless the portfolio makes enough money to pay a property manager, the job will be left to the person who inherited it and that will be tantamount to a full time job.
Selling an entire portfolio is often the best way to realise the assets and absolve someone of the hassle. It also frees cash to pay any tax bills and/or debts. Offloading a portfolio may also be the wisest choice if there are multiple beneficiaries who can’t agree on a future plan.
If a landlord dies and there are tenants living in their properties, there is news for those handling the estate. Any tenancies do not die with the landlord. Instead, the executor or estate administrator automatically takes over as landlord and they will have to manage the tenancy until affairs are resolved.
As mentioned, inheritance tax must be paid within 6 months of the estate owner's death. An open market sale of a property portfolio may take longer than this, leaving the executor/administrator with no option but to use their own money – or get a loan – to pay the tax bill.
For this reason, many people who inherit property portfolios find they need a quick cash sale so they can settle an inheritance tax bill or repay themselves. This is something ProbateMove specialises in. We understand the need to access funds with speed, so we offer exchange within seven working days. In terms of completion, we’ll work to a schedule that suits the estate but you could have cash in the bank in an average of 42 days from receipt of legal documents.
If you have inherited a property portfolio and are unsure of your next move, contact ProbateMove. We offer free, no obligation portfolio valuations and straightforward advice.