Published 28 October 2017 · Last reviewed 1 May 2026
Concerned about inheritance tax on my properties find out about the role of mortgages in succession planning and Gifted Equity Deposit.
Why Gifted Equity Deposit are being used. Landlords face a dilemma as old age sets in; they could be sitting on a number of properties in their estate and face a huge 40% tax bill unless they make succession plans to pass the property on to their children in their lifetime, and passing on mortgaged property presents a challenge.
Firstly, I need to point out I’m tax adviser and independent professional help should be sought in this regard but what I have seen Landlords do from a mortgage point of view is too valuable to keep to myself.
Passing on mortgaged buy to lets via a Gifted Equity Deposit
In this article I explore the passing on of mortgaged buy-to-lets to descendants via a Gifted Equity Deposit.
Example: Father gifts property to son
The Son could effectively act like any purchaser and buy the property off his Father, contributing a physical deposit. However, from experience most Children prefer not to part with a deposit but instead would prefer the Lender factor in the ‘equity’ as their collateral in the mortgage transaction.
The Father normally seeks to be clear the current mortgage on the property and be recompensed for any Capital Gains Tax. So how does it work?
On the face of very neat and tidy, however there are other factors to consider:
- Son’s eligibility for a mortgage. This can be relatively straight forward if their credit history is good and the expected rental income outweighs the mortgage payment by at least 40%.
- The right Lender. Most mortgage lenders do NOT allow ‘gifts of equity’ on buy-to-lets. You are likely to need mortgage advice, from a suitable professional company, such as Niche Advice.
- Reliability of your Son. Although the inheritance tax benefits of passing on can be advantageous you might have reservations of how your children might look after the asset.
- Loss of rental. If the Father looked to retain some income from the property then HMRC are likely to see this as a ‘gift of reservation’ and drag it back into inheritance tax
- Tax – Fathers Capital Gains Tax and other costs such as sons Stamp Duty the best place to start is always by talking to a tax adviser first.
Have Your Cake and Eat It – Limited company buy to lets
One potential idea could be a limited company wrapper. To be clear I can arrange limited company buy-to-let mortgages but from a tax perspective you would need to talk this through with a taxation expert as this area is not covered by my business.
If the Son took out a mortgage in a Limited Company name and made his Father a small shareholder (so he would not have to go on the mortgage application), the Father would be able to take a dividend and also keep a ‘hand in’ with the decisions on the asset.