Is estate planning simpler when investing in my own name or through a Limited Company? Here, we discuss the differences and how they impact your mortgages when estate planning.
Deciding whether to hold your portfolio in your personal name or via an SPV Limited Company will have a significant impact on your inheritance tax and estate planning position.
To help, we’re sharing a practical guide to help you understand how investment structure affects your long-term financial planning and help you decide which is best for you.
This blog acts only as a guide. Please seek professional tax advice before making any property investment decisions.
Understanding Inheritance Tax on Personally Owned Property
When a landlord passes away, all personally owned assets, including their own home and rental properties, are aggregated. Liabilities (mortgages and debts) are deducted, and the remainder is assessed for inheritance tax at 40% above the available allowances.
Read our full guide to how inheritance tax is calculated here.
For most landlords, there are very few IHT reliefs available when property is held personally. Therefore, it’s essential to assess whether this ownership structure is the most beneficial for you and your property portfolio in the long term.
Why Landlords Face Limitations When Holding Property Personally
- There are limited tax reliefs for personally owned property, especially as property values rise over time, while frozen thresholds drag more people into IHT
- Gifting triggers Capital Gains Tax (CGT) because HMRC still treats the transfer at market value
- You lose control of the asset once gifted outright, meaning your children (or whoever the property is gifted to) can sell or misuse it
Many landlords regret not addressing estate planning early because values were lower years ago, meaning more could have been passed on without triggering tax.
Gifting Property
An outright gift of a personally owned rental property is treated “at arm’s length,” meaning HMRC will impose CGT on any gain.
The key factors to consider before gifting a property are:
- CGT applies immediately if there’s been growth since purchase
- You cannot retain rental income after gifting
- You lose full control of the property
- The gift becomes a Potentially Exempt Transfer (PET); however, you must survive 7 years from the date of gifting the property for it to fall outside your taxable estate
What Are Discretionary Trusts and When Are They Useful?
Discretionary trusts allow a landlord to give away assets while:
- Retaining control as trustee
- Avoiding capital gains tax on the transfer into a trust
- Deciding who benefits and when
However, trusts are limited by the £325,000 nilrate band per person and exceeding this can trigger a 20% lifetime inheritance tax.
Lenders do not lend directly to trusts, but a few specialist lenders accept trusts as shareholders within a Limited Company. An experienced buy to let broker (like us!) will be able to source suitable lenders for this situation.
Limited Company Estate Planning: Why It Opens More Doors
Holding property through a Limited Company provides far greater flexibility for passing wealth down the generations. Instead of transferring physical properties, you plan around shares, taking their value, growth, and allocation into careful consideration.
How Share Gifting, Trusts & Growth Shares Reduce IHT
1. Small Annual Share Gifting
- Uses your annual CGT exemption
- Typically involves gifting tiny fractions (e.g., 0.1%) each year
- Over time, ownership steadily shifts to the next generation
2. Lump-Sum Gifts into Trust
- Up to £650,000 for a couple can be placed into a discretionary trust every 7 years with no lifetime IHT
- You retain control via trustee roles
- You avoid CGT on the transfer
3. Growth Shares
Growth shares offer a powerful strategy in which children benefit only from future growth, not today’s value.
For example:
- If the company is worth £1m today, growth shares may only benefit once the company reaches £1.3m
- Any value between £1.3m and the eventual value (e.g., £2m) falls outside the parents’ IHT exposure
This freezes the taxable estate while passing future appreciation to children tax-efficiently.
Will Lenders Still Work with You? Mortgage Implications Explained
Director Deaths & Shareholder Changes
Lenders generally:
- Work with the estate to appoint replacement directors
- Run standard checks if someone gains 20%+ shareholding
- Ignore minor shareholders (<20%) for mortgage purposes
Trusts as Shareholders
For the select few lenders that accept Trusts in criteria, the Trust must be straightforward, and you’ll need to provide all the documentation upon application. These lenders often have no issues in these scenarios, as the Limited Company remains the borrower, not the Trust.
Changing Share Structures
Landlords should always notify lenders before altering directors or shareholders. Lenders monitor Companies House and will see changes automatically, so there’s no point in trying to hide any amends to your Company structure. Lenders understand the complexities and that there may be changes to your Limited Company directors, so being transparent will save you time and potential issues later down the line.
Personal vs Limited Company for Estate Planning
|
Factor |
Personally Owned Property |
Limited Company Structure |
|
IHT Flexibility |
Very limited reliefs are available, and full property values are assessed. |
Highly flexible, as shares can be gifted, transferred, or issued strategically. |
|
CGT on Gifting |
Immediate CGT based on market value. |
Often there is no CGT when transferring shares to a trust or issuing growth shares. |
|
Control After Gifting |
Lost completely, as children can sell or misuse the asset. |
Retained through a trustee or shareholder structure. |
|
Trust Use |
Trusts cannot hold mortgaged properties directly. |
Trusts can hold shares, while Limited Companies retain mortgages. |
|
Lender Compatability with trust or shareholder planning |
Simple, but limited planning options. |
Accepted by some specialist lenders if the structure remains transparent, with minor shareholders (below 20%) largely ignored. |
|
Seven-Year Rule |
PETs require 7year survival. |
Large parts of the estate can be placed into trust or “frozen” using growth shares. |
|
Tax Planning Potential |
Low |
Very high, and often used for longterm succession strategies. |
Choosing the Right Structure for Your Long-term Plans
Personally owned property offers simplicity, but very few tools for reducing inheritance tax and gifting can be expensive due to CGT. Limited companies, on the other hand, are incredibly powerful for succession planning, giving landlords ways to control assets, limit tax, and structure ownership in a lender friendly manner.
To learn more about the best estate planning strategies to adopt and get expert advice on inheritance tax, watch our webinar, ‘Inheritance Tax and Estate Planning for Portfolio Landlords’ on demand here.
