While it’s tricky to pinpoint how many people in the UK have a property portfolio some of the calculations curated online offer useful clues.


For instance, according to the most recent Private Landlord Survey – last conducted in 2021 and covering only landlords in England – there are around 2.82 million landlords, with 57% of those owning multiple properties. Other stats state the average UK landlord has nine properties in their portfolio, generating more than £8,000 gross annual income per property.


Of course, these are just averages. But if you count yourself among the UK’s legion of property portfolio landlords you’re probably building wealth at a steady pace.


What’s more, you’ve probably wondered what will happen to your properties after you’ve passed away. If you haven’t yet put in place the building blocks of a plan to manage your estate you could unwittingly leave an unwanted legacy for your loved ones.


Don’t let bad planning ruin your estate


Without proper financial planning, property portfolio landlords will face pitfalls in the future.


One of the most common issues we encounter and advise on is their failure to arrange Lasting Powers of Attorney (LPA) Property & Financial Affairs. If ever you were to lose mental capacity your portfolio could become unmanaged and problems will mount.


A further frequent oversight is failure to consider adequate protection policies. This is key, because on your death no cover will be available to offset mortgage costs. Your beneficiaries’ subsequent inheritance tax (IHT) liability will also be affected.


Separately, your portfolio may consist of properties in foreign markets. It’s worth noting that succession laws differ from one jurisdiction to another. This is a further aspect that needs to be considered as part of your estate planning strategy; in fact, it’s highly likely you’ll need a separate will for each jurisdiction.


Above all else, property is a main driver of IHT and a key reason why people speak to us. With property prices increasing and IHT thresholds staying frozen, this is becoming an issue for more and more landlords.


Protecting Pablo and Pauline’s properties


Let’s look at an example of how to build firm foundations for a property portfolio.


Pauline and her husband Pablo have assembled a portfolio of properties which are collectively valued at £4.5m. All of them have sizeable interest-only mortgages.


As propitious as this sounds, Pauline and Pablo faced many challenges when they approached us for help:


  • A significant IHT bill; they had surplus cash but not enough to cover the potential cost
  • Underfunded pensions and mortgage protection insurances, leaving their future finances at risk
  • The ongoing burden of managing the portfolio day-to-day as their children were all too busy to help out

In essence, this gave the couple four main problems. First, potentially outliving the mortgage redemption dates, meaning they’d be forced to sell the property and pay Capital Gains Tax (CGT) while also losing rental income. Second, should they die shortly after the sale having suffered the CGT, they’d now suffer IHT.


The third quandary was their concern about third-party threats; not least their children potentially dealing with settlement claims in any future divorce proceedings. Finally, Pauline and Pablo were worried about problems that would arise if they ever lost mental capacity and mobility, eventually finding it impossible to continue managing the properties.


Ensuring your estate planning is as safe as houses


We were able to arrange an array of solutions to give Pauline and Pablo and their family peace of mind.


By drawing up an asset protection solution that included wills and trusts their children’s inheritance was buffered from future tax shocks.

We also reviewed the couple’s existing pension arrangements. Upon review, their contributions were found to be negligible. Our advice was to redirect surplus income into a separate pension that benefits from tax relief and moves money out of the estate immediately. In addition, we set up a Pension Death Benefit Trust featuring succession planning opportunities, including benefits available on death.


We formulated a mortgage repayment strategy to instigate the potential to start gifting equity in the properties into a Holdover Gift Trust. This deferred any capital gain and will reduce IHT liability after seven years.


Finally, alongside arranging LPAs we reviewed Pauline and Pablo’s property portfolio. We were able to cement long-term life policies that are designed to pay down mortgages on the highest-yielding properties following death during the mortgage policy term.


While estate planning is about casting an eye to the future, we also recognise property portfolio landlords face a number of difficult situations today. With many aspects to handle, from repairs and maintenance to managing tenants and bookkeeping duties, time isn’t always your friend.


Putting all of your eggs in one basket is another error. If you don’t diversify your portfolio across different types of property investments and stick to, say, residential buy-to-lets, you can become exposed to risk if a poor economic event affects your narrow area of focus. It’s better to extend into other options, such as commercial property and properties with permitted development rights.


Similarly, you should seek to diversify your hard-earned wealth across multiple asset classes – from global equities to fixed-income securities within tax wrappers like ISAs and pensions.


UK investors’ penchant for property portfolios is unlikely to fade any time soon. After all, investing in property has, by and large, been one of the best ways to watch your wealth grow over time.


Now it’s time to make sure you protect your financial legacy by constructing a concrete plan that solves your problems today but is also fit for the future.

Recommended Posts