Few asset classes are as exposed to UK inheritance tax (IHT) as property — and few are as widely misunderstood, particularly among overseas investors who assume non-residence places them outside its scope. Speaking to David Bell, Founder of PCD Group, for the HNW Advisor series, Zeeshan Khilji, CEO of Tax Consulting Group, set out why property carries such acute IHT exposure and what genuine planning options look like for investors and advisers.

“Property doesn’t attract any of the reliefs that are available for inheritance tax,” Khilji explained. Unlike qualifying business assets, which may benefit from Business Relief, residential and most commercial property sits outside these exemptions. Compounding the issue is the UK situs rule: if a property is UK-based, it is exposed to IHT regardless of where the owner lives or how the property is structured. “It doesn’t matter where the client is based, or which structure the property is in,” he said.

A misunderstood exposure for overseas investors

This point is frequently lost on overseas buyers relying on outdated assumptions. Before 2017, UK property held through an offshore corporate structure — a Jersey or Alderney company, for example — could sit outside the IHT net. Those rules have since changed. “It doesn’t matter where the property is held, it’s still subject to inheritance tax if the property is UK owned, regardless of the residency status of the investor,” Khilji noted, adding that the misconception is especially common among clients in the Middle East who assume non-residence shields them from exposure.

Nor does leaving assets to a surviving spouse fully resolve the issue: it defers the liability rather than removing it. “What happens when the surviving spouse passes away?” Khilji asked. “It doesn’t quite solve the problem long term.”

Lifetime gifting and the seven-year rule

The core planning toolkit starts with lifetime gifting under the potentially exempt transfer (PET) rules. Provided a donor survives seven years from the date of a gift, the asset falls outside their estate — though a sliding scale of tax applies between three and seven years if they do not. Pitfalls remain: gifting a main residence while continuing to live in it without paying market rent triggers gift-with-reservation-of-benefit rules, so the asset stays inside the estate regardless of survival. Gifting also crystallises capital gains tax (CGT) at the point of transfer — currently 24% — creating what Khilji called “a dry tax charge”, since the donor receives no proceeds but still faces a bill. “There isn’t a one-size-fits-all approach,” he said. “It’s all about looking at every client scenario.”

Trusts, companies and Family Investment Companies

Trusts remain viable but carry an upfront cost: transfers above the nil-rate band (£325,000, frozen for the coming years) attract a 20% lifetime charge, plus ten-year anniversary charges. On a £10 million transfer, that could mean roughly £2 million paid upfront — a cost some clients accept for the certainty it buys.

Simply incorporating a portfolio does not, by itself, remove IHT exposure — shares in the company still form part of the estate. Its real value is the flexibility it unlocks, particularly through Family Investment Companies (FICs), where parents hold “freezer” shares with rights over capital and voting while future growth accrues to “growth” shares held by the next generation. “The standard company wouldn’t give us the flexibility to do this,” Khilji said, noting FICs avoid trust-style entry and anniversary charges. Portfolios large enough to constitute a qualifying business may also incorporate without an immediate CGT charge, using incorporation relief to secure a base cost uplift.

Family buyouts, insurance and demergers

Family buyouts — where shares transfer to a next-generation-owned company, funded via loan notes rather than cash, with gains deferred under HMRC clearance — have proved popular, provided clients are ready to cede control. Life insurance written in trust remains a common complement, covering residual exposure once other strategies are in place. Corporate demergers can split portfolios across entities tax-neutrally and, where undertaken for genuine commercial reasons, offer a base cost uplift as a secondary benefit.

The bottom line

Using the example of a £10 million residential portfolio with mixed ownership, Khilji illustrated the stakes plainly: doing nothing exposes the estate to roughly £4 million of inheritance tax — almost half the legacy gone to the Exchequer. Good planning, by contrast, does not require relinquishing control immediately. “It’s never too soon to plan,” he said. “There can be structures put in place that allow us over time to reduce the inheritance tax exposure.”

His closing advice was straightforward: commission a full review — not just of the property portfolio, but of the estate as a whole. “Inheritance tax planning is only effective when we look at it holistically,” he said. “We can’t just be looking at it from an individual asset perspective.”

This article is based on an interview recorded for the HNW Advisor podcast, produced by PCD Group. Watch the full interview and explore related content via the link in comments.