Legal Corner Find some Relief in selling your business


Provided you have been continuously trading for two years or more, your business will attract Business Property Relief (BPR), i.e. 100% Inheritance Tax relief, were you to die.


But what if you sell or cease trading? The BPR is immediately lost. So how do you retain it?


Before you sell and/or cease to trade, you should set up a number of Pilot Trusts for the benefit of your family. These are discretionary trusts that you settle with a nominal trust fund for use later on.


Let’s say your business is worth £5 million. To sell or otherwise dispose of your business you will have to pay Capital Gains Tax – this is Entrepreneurs’ Tax at 10% on the first £2 million gain, and 18% or 28% on the balance of gain. You can holdover these gains taxes by transferring into the Pilot (discretionary) Trusts by electing to transfer at your acquisition value.


Turning to Inheritance Tax, the current personal threshold is £325,000 and this has been set at least until 2014/15. In this example, you may wish to set up at least 20 Pilot Trusts, so that the value going into each trust is less than £325,000 and also allowing for capital growth of the trust investments.


Let’s say you set up 20 Pilot Trusts. These can be settled on the same day with nominal trust funds


- say £10 or even just a postage stamp! The reason for this first step is that Her Majesty’s Revenue & Customs regards all trusts settled on the same day as being associated for Inheritance Tax purposes, but only at the initial value – in this example, 20 x £10 = £200, and so well within your annual exemption of £3,000.


On day two, you can transfer your trading business equally amongst the trusts – in this example, each trust will acquire £250,000 – well within the personal allowance of £325,000 – and each trust has its own personal allowance. You have effectively acquired 20 additional personal allowances – and you could set up more trusts, additionally, if you choose.


Now that the business is in a safe environment, you can continue to trade, cease trading or even sell at any time in the future.


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01803 213251 01803 832191 www.hooperwollen.co.uk This firm is regulated by the Solicitors Regulatory Authority (No 49922) 57 Paignton 01803 521692


Pilot Trusts can also be used to avoid the associated trusts trap (see above) – you can settle a trust now with nominal value and later transfer a valuable asset to it in your Will. The reason for this would be that you may be settling another trust of value by your Will – this way, the two trusts are not associated for Inheritance Tax purposes.


In addition to the tax benefits, your trusts can continue for generations to come and therefore your trustees can protect your family’s wealth with good money management.


by Anthony Smith of Hooper & Wollen Solicitors


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