Succession Planning for Business Owners – much more than just planning for the family.
The need to prepare for our death is a fact of life but sadly is something that we put off all too often. However, none of us knows what is round the corner and it is a reality that whilst many business owners may plan for their retirement, many die beforehand and have failed to make sufficient plans for the operation of their business.
The death of a business owner or partner can have a major impact on the continuation of a business and the way that it functions. Failure to adequately prepare can leave a legacy of heartache, with family and shareholders/partners at conflict and a business in chaos. Disputes can be expensive and distracting to the normal routine operation of a business.
As a sole trader, your death would result in the Executors or Administrators of your estate taking over the business, and in all likelihood selling it as a going concern. However, they may be under pressure to sell the business quickly, perhaps at an undervalue, particularly if the other beneficiaries have differing financial needs. A carefully drafted Will can provide those administering the estate with flexibility in dealing with the business and other assets, allowing the business to be continued and to be supported by other assets in the estate where needed.
A partnership can, in the absence of a partnership agreement, simply dissolve on the death of a partner, which can cause financial and practical difficulties for the surviving members. Lifetime planning, careful Will drafting and the use of a partnership agreement can ensure that the surviving partners can effectively carry on the business, and avoid adverse inheritance tax implications. In particular it can give the surviving partners the ability to purchase a deceased’s partners share perhaps using life insurance taken out for the purpose.
There are also potentially valuable inheritance tax reliefs that are available with careful succession planning. Business Property Relief ( or BPR) is a very valuable relief where qualifying business interests attract 100% relief ( meaning that the value of the business asset is reduced to Nil for Inheritance Tax purposes.) If assets attracting such reliefs are given simply to a spouse, then the reliefs can be lost as any gifts made to a spouse are in any event exempt from Inheritance Tax. Appropriate planning can ensure that the assets qualifying for BPR can be given to other beneficiaries, or, more flexibly, into a trust arrangement, to preserve the relief but ensure that the surviving spouse and family members can still benefit. This can have very valuable tax advantages, potentially saving 40% of the value of the assets in tax.
The future existence of your business may well depend on the succession planning that you put in place.
UK Care Guide have provided tips on how to avoid inheritance tax on property and your wealth, which can be found here https://ukcareguide.co.uk/avoid-inheritance-tax/
For more information please contact Samantha Buckthought on 01752 292216 or email sbuckthought@wolferstans.com.
This article can be seen on http://www.thisisplymouth.co.uk/Business-sponsored-column-Samantha-Buckthought/story-19872922-detail/story.html#axzz2gk0hDccz