Can my mum pass her property portfolio to us without falling into an inheritance tax trap?

My father passed away 18 months ago unexpectedly. Thankfully he had a will which left his estate to mum.

His estate contained predominately a portfolio of five rental properties of which three are mortgaged, the home that my mum lives in and a surplus of cash.

My mum is retired now and uses a portion of the rental income to top up her pension and support her day to day living.

My mum wants to structure things in a way which mitigates inheritance tax and capital gains tax as much as possible.

I'm one of three brothers - one has health issues and doesn't work, the other is potentially emigrating and doesn't want to complicate things by owning a property outright in his name.

What are our options? L.J, via email

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Harvey Dorset, of This is Money, replies: This must be a difficult time for you and your family.

It is good to hear your father did not pass away intestate, as a will undoubtedly makes the whole inheritance process slightly easier.

As your mother wants to reduce the eventual inheritance tax bill now, it is good she is considering her options well in advance.

Unfortunately, as you mention, there are complexities in your situation that mean it isn't as straightforward as your mother passing the whole estate directly to you and your brothers when she dies, especially given that there could be a hefty inheritance tax bill if she did given the size of the estate.

As discussed below, there are options available to you to mitigate the IHT bill, especially if you take action sooner rather than later.

This is Money spoke to two financial advisers to find out what you, and your mother, need to do in order to reduce your future tax bill.

Aaron Banasik, independent financial adviser at Ascot Lloyd, replies: I'm sorry to hear about the loss of your father.

It's reassuring he had a will in place, allowing your mother to inherit the estate smoothly.

With a portfolio of five rental properties three mortgaged alongside her home and a cash surplus, your mother is rightly seeking to protect the estate from future inheritance tax and capital gains tax while supporting her retirement.

Observing inheritance tax, it is charged at 40 per cent on estates over £325,000, although transfers between spouses are exempt.

On your mother's eventual passing, the estate could benefit from an enhanced nil-rate band of up to £1million, provided the family home is left to direct descendants.

She may consider gifting property during her lifetime, which, if she survives for seven years, could fall outside her estate for IHT.

However, if she retains any benefit such as the rental income, then the gift may still be considered part of her estate.

Furthermore, CGT may apply immediately on such transfers, and stamp duty could arise if debt is involved.

Gains above the CGT allowance (£3,000 for 2025/26) would be taxed at 18 per cent or 28 per cent. Holding the properties until death eliminates CGT entirely, as assets passed on death are exempt from CGT.

An alternative strategy could be to sell the properties gradually. This allows her to reinvest proceeds in IHT-efficient investments such as a discounted gift trust which can provide her with an immediate IHT discount whilst producing a regular income, however it's important to speak to an experienced independent adviser to provide guidance on this.

Discretionary trusts can offer a way to transfer assets while retaining some control, though they could come with initial IHT charges and high-income tax rates on rental income.

If structured correctly, trusts can help support family members, especially relevant with one son unable to work and another potentially relocating.

Alternatively, whole of life protection written in trust can be used to cover the future IHT bill. Premiums may even qualify under the 'normal expenditure out of income' rule if her income is sufficient.

Given the differing needs of your brothers, flexibility is vital.

A mix of selective lifetime gifting, trust arrangements, and making use of your gifting allowances may allow for equitable wealth transfer without placing immediate obligations on them.

Patrick Haines, chartered financial planner at Partners Wealth Management, replies: This is an important time for the family following their loss 18 months ago.

Specific measures should now be put in place to ensure tax is mitigated.

In addition, an assessment ought to be made in relation to your mother's ongoing vulnerability, just in case your father's passing impacts any decisions being made now.

The first action which should be considered is a deed of variation (DoV) of your father's will.

This enables the terms of the will to be altered post-death so long as all of the original beneficiaries are in agreement with the changes and that adjustments take place within two years of death.

I recommend you then review the five rental properties with your mother and siblings (in terms of yield and values), to see which of these could be now placed in the names of her three sons.

This can be actioned by a legal transfer of ownership once the DoV has been actioned.

Potentially, you and your brother who is to remain in the UK could each receive a rental property, with a third property being sold to realise a cash sum for investment for your other brother who is due to move abroad.

Advice should be taken for your non-working brother as any rental income now received could impact his receipt of state benefits (such as Personal Independent Payments etc.)

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By removing these three rental properties from your mother's estate, this could save 40 per cent inheritance tax on these assets which would have otherwise become payable on your mother's eventual passing.

The remaining two rental properties could continue to be owned by your mother with any rental income being enjoyed as a top-up to pensions etc.

If any of the income is excess to requirements, this can be gifted outright to you and your brothers without any inheritance tax applying, so long as certain conditions are met.

This will also ensure there are sufficient assets remaining within your mother's estate should future care costs need to be met.

Depending on your mother's age and medical history, some of the excess income could also be used to fund a Whole of Life policy, written under trust.

The sum assured would then be payable on your mother's passing and this could be used to meet some or all of the inheritance tax due.

Any mortgage debt can be used to reduce the taxable value of the estate.

A life policy is particularly useful where property is concerned as it can ensure that the two rental properties (and main residence) do no need to be sold immediately and can eventually pass to you and your brothers free from IHT.

Assuming your father owned the five rental properties in his sole name, any capital gain will have been 're-based' on your father's passing. This has benefits in there will be no capital gains tax (CGT) due on the gain as gains die with the owner.

The re-basing of the property values does need to be claimed so is not an automatic entitlement.

If your brother does move abroad, the sale proceeds of his inherited rental property could be reinvested using an Offshore Bond which he can access when he is abroad if needed, whilst enjoying deferred tax on the fund in the UK.

Advice should be sought at the time to ensure any withdrawals are not taxed by the authorities where your brother is residing when abroad. He should also consider making full use of his Isa allowance before leaving the UK.

It is important to ensure your mother's will is now reviewed following your father's passing as there may be elements of the existing will which are no longer relevant.

Equally, your mother should ensure she has a power of attorney arranged in the event she loses capacity and is unable to manage her own affairs. This will save the family an awful lot of cost, administrative burden and stress at a difficult time.