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Property development funds offer reliable IHT solution in falling market, says Strutt & Parker

Investors looking to mitigate their inheritance tax liability should invest in property development funds rather than gifting or placing money in a trust, says Strutt & Parker real estate financial services.

The firm highlights that IHT is becoming increasingly prevalent, with 24,000 estates due to pay an average of £139,000 this tax year. It believes property development funds offer a reliable solution to IHT mitigation as they fall outside an individual’s estate after two years compared to gifting which holds a seven year exemption term and establishing a trust which carries a 20 per cent up front tax charge.

It also says the funds are capitalising on the falling market as sites can be purchased more cheaply for development and sold off when the economic environment is likely to have improved.

SPREFS says fund returns have a two to three investment horizon but are not predicated on any future performance. Instead they are calculated as a profit on cost based on known variables and therefore profit is not reliant on a market bounce back.

SPREFS head of development Gary Lewis says: “Investors in our property development funds benefit from business property relief as soon as they invest, meaning in only two years the money is sheltered from IHT and remains accessible to the investor.

“We are currently benefiting from the falling market as we can buy the sites to develop more cheaply and expect to dispose of the property when the wider economy is hopefully in the recovery phase of the investment cycle in two to three year’s time.”

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