Thinking About Moving On? Key Considerations When Planning For The Succession Of Your Business

You are likely to be an integral part of the business, and the business undoubtedly plays a significant part in your life, so it may seem overwhelming to start thinking about taking a step back.

Some initial questions you might want to consider are:

• Will you step back completely from the day-to-day management, and if so, who will take over?
• Will you retain an interest in the business?
• How will your staff be impacted?
• Do you want an immediate cash pot, or would a long-term payout be appropriate?  

Our Corporate department can work with you and your accountants to consider the different options and any competing objectives.

If a business interest is involved, your will is unlikely to be as straightforward as leaving everything to your spouse, children, or wider family outright. There will be practical considerations regarding who is involved in the business, how to make effective use of tax reliefs, and planning for if the business interest is no longer in your estate.

Initial considerations you may wish to consider include:

• Who do you want to benefit from your estate?
• Will only those involved in the business receive a share of the business? Will this cause a dispute if some family are excluded or if those not contributing to the running of the business receive the benefit of an interest?
• Are the individuals you wish to receive an interest in the business already involved in it and if not, should they be?
• Are the beneficiaries old enough and mature enough to receive the business and their inheritance in their own right?
• Will your spouse or civil partner, if applicable, have sufficient assets to support themself?
• Do you want to achieve equality between your children or wider beneficiaries, and how will you achieve that in light of fluctuating business values/interests and lifetime gifts?
• How should your estate be distributed if you no longer have a business interest?
• Do the company articles or partnership agreements allow for your chosen business succession?

Whilst there are multiple overlapping factors to consider, our Wills, Trusts and Probate team can explore the options with you and guide you through the advantages and disadvantages so that you can achieve your aims.

Many business owners want to mitigate the impact of Inheritance Tax to ensure that as much as possible passes to their chosen beneficiaries.

Although the future Inheritance Tax regime is uncertain, under the new Labour government, we are advising our clients not to pause their estate planning in case something happens to them (e.g. you die or lose mental capacity) before changes are announced by the government.

Tweaks can always be made at a later date if needed and, where businesses are involved, regularly yearly/bi-yearly reviews are appropriate anyway.

We will work with you to consider the following reliefs:

Business Property Relief

Whilst your estate retains an interest in a business, the value of the business may be exempt from inheritance tax if it is a qualifying interest that you have held for at least two years immediately before your death.

We help our clients to make the best use of Business Property Relief by considering passing the business asset to a non-exempt beneficiary to prevent the value of the asset adding to e.g. the spouse's estate.

Spousal Exemption

If you are married or in a civil partnership, assets passing to your spouse or civil partner are exempt from Inheritance Tax.

This exemption can be a useful way of reducing Inheritance Tax exposure on the first death and can allow the surviving spouse to carry out further planning, e.g. gifting to reduce the size of the estate on the second death.

Trusts that give the spouse a lifetime interest can also be beneficial for providing asset protection, as the spouse would not own or have absolute control over the capital assets that are protected for your chosen beneficiaries.

Nil Rate Band

The Nil Rate Band allows assets up to the threshold, currently set at £325,000, to be passed to non-exempt beneficiaries free of Inheritance Tax. It is an effective tool for lifetime gifting without any immediate Inheritance Tax consequences, but the interaction of lifetime gifts to individuals and Trusts with the available Nil Rate Band on death must be considered carefully.

Advice from our Wills, Trusts, and Probate team should also be sought to secure maximum benefit from transferable Nil Rate Bands if you or your spouse have been widowed previously.

Residence Nil Rate Band

This relief provides each individual with additional relief from Inheritance Tax, currently set at a maximum of £175,000 if they leave a qualifying interest in a property to a lineal descendant.

As this relief begins to taper if the estate exceeds £2 million, we work with our clients to consider reducing the estate's size to maximise the relief's availability.