Building a buy-to-let legacy

Published: 23/06/2022

Bricks & mortar never go out of fashion.

People will always need homes, which makes buying to let one of the safest investment strategies around. It's also a smart way to build a tax-efficient inheritance, something today's young are becoming more reliant on than previous generations with the ever-widening gap between house prices and incomes.

Property has stood the test of time as a solid way to create wealth with an asset that’s forever in demand and can never disappear overnight.  And while nobody can predict what lies ahead, there are steps you can take to accelerate your goals in life, plan a comfortable retirement, and give your children a valuable head-start.

So let’s take a look at how you can lay the foundations of a secure financial future for you and your family.

While true wealth creation happens over the longer term, it’s naturally more motivating when a plan includes some earlier rewards.

As the equity grows in your buy-to-let(s), you can use it to realise some of your life goals long before retirement. Owning rental property can help you:

  • extend or improve where you live now
  • increase your spending power on your dream forever home
  • buy a second home overseas where you may not be able to get a mortgage
  • pay for your children’s fairytale wedding(s)
  • take trips of a lifetime in far-flung places.

The idea of sacrificing everything today for a better tomorrow is thrown around quite a lot, but it isn’t universally appealing. Fortunately, it's perfectly possible to strike a balance of medium-term rewards and future financial freedom.

The average age of a first-time buyer has risen by 6 years since 2007 and now stands at 34.  At the same time, Rightmove reports that a solo first-time buyer typically needs £74,402 to buy a home.

Higher education costs, escalating rents and soaring house prices have made it harder and harder to get onto the property ladder. Parents want to do what they can, and investing in buy-to-let can help you ease your children's path as they step out into the world by:

  • providing a place to live when they’re studying or starting their career
  • drawing down equity for a deposit to help them buy their first home
  • giving them a ready-made business to take over if they share your love of property
  • educating them in financial management and wealth creation
  • teaching them independence and responsibility early on.

While you never know what path your children will choose after they finish school, your buy-to-let business can help you make a positive contribution to the beginning of their journey.

Whether you choose to grow a lettings portfolio or stick at one buy-to-let, being a landlord can be a hassle-free and rewarding experience.

The naturally upward trajectory of house prices and rents protects the value and improves the yield of your investment, year after year.

As the equity grows in your buy-to-let(s), you can use it to acquire more properties and/or improve the value of your existing portfolio without dipping into savings.

Being a landlord can give you a completely passive income when you have a managing agent looking after tenancies, maintenance, repairs and legal compliance on your behalf.

You can also use your lettings income to diversify into ISAs and pensions, or for dipping your toe into more adventurous territory like art, shares and crypto, all the while knowing that your property investment is safe.

Financial freedom, more than anything else, provides choices in life, but most incomes aren’t enough to retire in comfort. But with even a small portfolio of just 1 or 2 properties, buying to let can give you:

  • an enjoyable retirement beyond a state or personal pension
  • decades of pure income after your mortgages are repaid
  • equity in your portfolio to release for lifestyle and luxury purchases
  • a financial cushion for unexpected expenses
  • the funds to start a charity, NGO or passion project.

Right now, you may have no idea how you’ll wish to spend your retirement or how much money you’ll need. Will you want to live closer to your family, move to the seaside, or travel the oceans? Buying to let today can give you more security and options in later life.

A big concern for parents is that so much of what they leave to their children could get eaten up in tax. The current inheritance tax threshold is £300,000, with 40% payable on anything above that. While the rate has been frozen until 2026, it could increase after that.

With the right strategy in place, you can ensure that more of the estate from your buy-to-lets passes to your children.

If you purchase rental homes in the name of a limited company, you can make your family members shareholders.

Holding your buy-to-let properties in a trust for your children can help you avoid the second-home Stamp Duty surcharge if they don’t yet own a home.

You can reduce the inheritance tax payable by your children when you donate more than 10% of your estate to charities, local sports clubs or political parties.

By planning in advance with the help of an expert tax adviser, you can provide a solid financial footing for your children and a lasting legacy for future generations of your family.

What's your next step?
For a real-life story of how one couple are building a buy-to-let portfolio to leave their children financially secure, take a look at this recent article in The Telegraph.

And if you’d like to talk about starting or growing your own buy-to-let business, why not get in touch? Call us for some friendly and expert tips on how to pick the right rental property in Berkhamsted or Tring and start designing your future.

Berkhamsted office: 01442 863000
Tring office: 01442 820420