Family businesses account for two in every three of the UK’s private enterprises. There are 3 million family businesses in the UK employing over 9 million people who contribute almost a quarter of all GDP to the UK economy.
The areas of Income, Inheritance and Capital Gains taxes for businesses is not straightforward, and can be a real minefield for the unwary. If you take time and work with your lawyer, accountant and financial advisor it’s usually possible to find ways to save tax.
You also need to plan for the succession of the business. Worryingly in a recent survey over 70% of family businesses indicated they have no formal succession plans with 22% admitting they did not believe one is necessary. The fallout from the lack of succession will often damage a business irrevocably and cause severe stress and financial hardship to loved ones.
Follow our top tips for succession planning to make sure you don’t fall foul.
Surround yourself with a good team. Even a sole trader needs a good team to call on. Make sure you have a trusted approachable lawyer, a good accountant and a good independent financial advisor. Don’t confuse legal advice, financial advice and the advice an accountant should give. They are all different areas and having the right advice regarding tax, law, and investments and savings can save you money.
Plan for the future succession of the business whilst you are healthy. Make sure you write a Will which includes adequate business powers for your executors. Appoint special business executors if you wish. Sorting out a badly drafted or invalid Will is expensive and can be disastrous for your business and your loved ones. Getting a Will drafted by a lawyer may cost a few hundred pounds but can potentially save thousands
Think about the business as a whole and who you wish to inherit it. If your business is incorporated do your articles direct where your shares have to pass when you die? Articles should be checked when you make a Will.
Ask yourself if you should consider a trust for the business shares or assets after you have died (or even when you are alive). Trusts can be used to pass the business down through the generations whilst not leaving it open to attack if a potential beneficiary divorces. They are also useful if you have young children who you want to eventually inherit the business.
Inheritance tax is a burden for many. Does your business qualify for business property relief? Make sure you do not inadvertently lose this relief by making a deal that other business owners or shareholders must buy your share of the business when you die as this is fatal for business property relief.
Make sure you make a commercial Lasting Power of Attorney to appoint trusted people to deal with the financial aspects of the business should you become mentally incapable due to accident or illness. Who will sign your cheques and pay business bills if you don’t!
Look into business assurances, such as key person insurance, shareholder protection, and income protection.
Remember, prevention is ALWAYS better than cure so plan ahead and you will never be on the back foot.