Will increasing my home loans cut my IHT bill on my buy-to-let properties?

admin
17 August 2015

Q

I have two buy-to-let properties, each with mortgages. The first property has a loan to value of 40% and the second 50%. I am reviewing my inheritance tax (IHT) liabilities and understand IHT would only be levied on the equity in the two properties, not the total value. Is that correct? If it is true, does that mean that by increasing the mortgages I could reduce my IHT liability?
From
PB, London

A

Inheritance tax is paid if your total estate is worth more than £325,000 when you die.
 
Your estate is valued by taking the open market value of your assets and deducting debts owed by you when you died. If you have a mortgage, that will be deducted when calculating the value of the property as an asset.
 
If you increase the mortgage on your buy-to-let properties, this will have the effect of reducing the net value of the properties for IHT purposes. 
 
However, you will receive cash from the increased home loan and if you haven't spent that by the time you die, it would be classed as part of your estate.
 
David Wesley-Yates is a chartered tax adviser at Red & Black Accountancy