The Importance of a Very Carefully Drafted Will; the Recession Is Giving Family Owned Businesses the Opportunity to Look Afresh at Succession Planning Issues. John Grundy, an Associate in the Private Client Team at the Birmingham Office of National Law Firm Mills & Reeve LLP, Highlights Those Areas Which Could Benefit from Some Attention
Byline: John Grundy
Downturn or no downturn, there are certain basics a family-run business needs to get right in terms of succession planning.
To protect the interests in a business, and to ensure the right people get to benefit from them, it is fundamental that the business owner makes a will. A well drafted will can save inheritance tax (IHT) and preserve the funds for the intended recipients. Similarly, any death benefits accruing from life or pension policies should be directed on death into a trust so they can benefit from reduced IHT.
These are the nuts and bolts of succession planning. However, the recession has brought other strategies into focus.
If the value of a business has fallen, it will undoubtedly feel like bad news. However, one advantage is that shares gifted will attract less Capital Gains Tax (CGT), due to their reduced value. What's more, shares in trading businesses benefit from lower rates of CGT, since they are classed as business assets.
From an IHT perspective, such shares passed on to a child may be eligible to business property relief, which means they could even pass tax free on the death of the owner.
An alternative, and possibly better solution, is to gift the shares into a trust rather than pass them on outright. This enables CGT to be postponed. It provides protection in the event of a divorce or financial claims. It also allows the individual gifting the shares to retain control over them during their lifetime by acting as trustee. Finally, if the business is sold, the resulting cash is outside the beneficiary's estate for the purposes of IHT.
If the recession is leaving you with a little more time on your hands it is perhaps opportune to look at other business structure issues as well. …