Inheritance tax sparks rental crisis as landlords hit by frozen thresholds

Inheritance tax thresholds could trigger a crisis in the rental market, according to new research.

Analysis given to the Telegraph by accountancy firm RSM UK, reveals that if landlords sold just one property to settle the inheritance tax bill, it could wipe out one in ten rental properties currently on the rental market.

The research by RSM UK given to the Telegraph, reveals 600,000 landlords could face having to pay thousands of pounds due to inheritance tax thresholds being frozen since 2009.

This is despite the soaring rise in house prices, which has pushed more landlords into the inheritance tax net.

50,000 more landlords will face an inheritance tax bill this year

Inheritance tax is charged at 40% on the portion of an estate over £325,000. Individuals have an extra £175,000 allowance towards their main residence if it is passed to their children, and spouses can combine their allowances.

The research reveals that one in five buy-to-let investors have a portfolio that exceeds the government’s inheritance tax thresholds.

RSM UK told The Telegraph that the estates of 50,000 more landlords will face an inheritance tax bill this year compared to last year.

Chris Etherington, private client partner for RSM UK, told The Telegraph: “Fiscal drag is pulling more landlords into the inheritance tax net and many families will simply have to sell up in order to fund the resulting tax bill.

“Some may not wait that long and feel it is the right time to sell up now, paying some tax now to avoid a larger liability later. Ultimately, it could be bad news for tenants.”

Mr Etherington adds that if landlords at risk of triggering inheritance tax sold just one of their properties to settle the bill, it could wipe out around one-tenth of the rental properties available on the market, putting more pressure on supply and demand.

Pass costs onto tenants

Chris Norris, campaigns and policy director at the National Residential Landlords Association (NRLA), told The Telegraph that the inheritance tax bill will also impact tenants.

He said: “Most landlords only own one or two properties, but the freeze on thresholds means that they will get a bill.

“There are so many taxes that hit landlords who then pass on to tenants – inheritance tax just adds to that.

“It won’t drive a firesale of properties, but it will cause some landlords to sell if they can’t find a tax-efficient way to pass on their portfolio, and use that money to fund their retirement instead.”

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