Inheritance Tax (IHT)
Quick answer
A tax on the value of an estate on death, charged at 40% above the tax-free threshold. Rental property counts in the estate at its market value less any outstanding mortgage. The nil-rate band is £325,000, with a further residence nil-rate band potentially available when a main home passes to direct descendants.
At a glance
- Rate
- 40% above the threshold
- Nil-rate band
- £325,000 (verify current)
Full guide
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Open full guideWhy Inheritance Tax (IHT) matters for landlords
A buy-to-let portfolio is often the biggest driver of an IHT bill because property values are high and, unlike a business, a rental portfolio does not usually qualify for Business Property Relief. Landlords sometimes incorporate into a limited company or use trusts for succession planning, but each route has its own CGT, SDLT and ongoing-cost consequences and needs specialist advice. Thresholds and reliefs change at fiscal events, so any figure here should be confirmed against current GOV.UK guidance before you plan around it.
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Official sources
LetCompliance editorial reviews this entry every quarter against the sources above. Always confirm specific duties with a qualified solicitor or your local council.
Related terms
BTL (Buy-to-Let)
A mortgage product and business model where a property is purchased specifically to rent out. Buy-to-let landlords are subject to Section 24 of the Finance Act 2015, which replaced mortgage interest relief with a 20% tax credit. Stamp duty is higher on a second property.
Capital Allowances
Tax relief for capital spending on qualifying "plant and machinery". For a standard residential letting they are generally NOT available — furniture and appliances are covered instead by Replacement of Domestic Items Relief. Capital allowances mainly apply to equipment in the communal areas of some HMOs and to commercial property; the furnished holiday let regime that allowed them was abolished from April 2025.
Capital Gains Tax (CGT)
Tax on the profit from selling a rental property. From April 2024 the CGT annual exempt amount was reduced to £3,000 and residential property gains are taxed at 18% (basic rate) or 24% (higher rate). A CGT return must be filed and tax paid within 60 days of completion.
Furnished Holiday Let (FHL)
A short-let property meeting the FHL availability and letting tests (210 days available, 105 days actually let, etc.). Treated as a trade for tax purposes until 5 April 2025, with full mortgage interest deduction, capital allowances on furniture and fittings, and Business Asset Disposal Relief on sale. From 6 April 2025 the FHL regime was abolished by the Finance Act 2024: existing FHLs fall under standard property income rules and Section 24 mortgage interest restriction applies in full.
Let Property Campaign
An HMRC disclosure facility that lets UK residential landlords come forward voluntarily about undeclared rental income from earlier years. In return for disclosing before HMRC opens an enquiry, landlords self-assess a reduced penalty: as low as 0% where there is a reasonable excuse, typically around 10–20% for an unprompted careless disclosure, rising toward 100% of the tax for deliberate concealment that HMRC discovers first. After registering an intention to disclose, the landlord has 90 days to calculate and pay the tax, interest and penalty.
Mortgage Interest Tax Credit (Section 24)
The 20% basic-rate tax credit that replaced full mortgage interest deduction for individual UK landlords under section 24 of the Finance (No.2) Act 2015. From 6 April 2020, finance costs (mortgage interest, loan interest, mortgage broker fees) are no longer deductible from rental profits; instead HMRC gives a tax reducer at the basic rate, capped at the lower of finance costs, property profits or adjusted total income after personal allowance. Higher- and additional-rate taxpayers are materially worse off than pre-2017; Limited Company landlords are unaffected because Ltd interest remains a fully deductible business expense.