Inheritance Tax is the tax on the estate of someone who has died. There is normally no inheritance tax to pay if the value of your estate is below £325,000 or you leave everything to your spouse, civil partner or a charity.

The standard rate for Inheritance Tax is 40% and the chargeable estate is the part of the estate that is above the threshold. Where an individual owns a main residence, there may be a further nil rate band of £175,000 per person to help families further mitigate their inheritance tax liability.

When purchasing a rental property, the equity of the rental property will make up part of your Inheritance Tax estate. The equity will be the market value of the property as of the date of death less any outstanding liabilities, such as a mortgage at the date of death.

Dependent on the ownership structure, owning the rental property in a limited company and personal names have different impacts.

Having properties in a limited company leaves a larger scope for inheritance tax planning as it is possible to structure a limited company to provide succession planning, ensuring properties are passed to the children in the most tax efficient way. This will require specialist tax advice as a standard limited company will not be setup in this way automatically.