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BUSINESS - IRWIN MITCHELL


WHEN BUSINESS GETS PERSONAL SUCCES SION PL ANNING FOR OWNERS


This is vital to protect your business and your family. Carefully drafted will structures can help to secure Inheritance Tax (IHT) reliefs and avoid a large tax bill. Planning is essential to ensure the business is not too heavily weighted towards investment, so that investments are separated with the risk of losing IHT relief.


Trusts are often used to make provision for vulnerable family members where it may be more appropriate for them to assume control of the business later on. Trusts can also ensure a fair balance is struck between those family members who are involved in the business and those who are not.


Aside from IHT, there will be other tax considerations. Although Capital Gains Tax (CGT) does not apply on death, it is likely to arise on a lifetime transfer of business assets.


Gavin Faber


Many business owners find the whole question of succession planning too daunting to contemplate, but the death of a business owner will invariably give rise to some tough challenges for the business.


Many business owners find the question of succession planning daunting to con- template.


The process can be difficult but the death of a business owner will invariably give rise to some tough challenges, so it is important to make plan ahead.


The potential dangers of inadequate planning could lead to family fallout fur- ther down the line. In a worst-case sce- nario it could place the future of the business in jeopardy.


SUCCESSION STRATEGIES


If you are a business owner the first priority is having a will that implements a succession plan.


Where applicable, entrepreneur’s relief can reduce the effective rate of CGT to 10% on any gain crystallised on the gifting or sale of an interest in a business. However, planning is crucial to ensure lifetime transfers are arranged tax efficiently.


Income Tax also comes into play. Taxation of share dividends rules have changed and an owner will want his company profits to be extracted efficiently. A retirement plan might involve transferring part of the business into a trust that, with careful structuring, will enable the trustees to distribute funds in a way that enables beneficiaries to use their personal dividend allowance effectively.


With existing business partners it is important to have an agreement setting out how they can acquire a deceased owner’s interest. A crossoption agreement will do two things: allow partners to acquire the interest for an agreed sum and give beneficiaries the right to require the partners to buy out the interest. The agreement will invariably be supported by life assurance which ensures that when either option is exercised, enough funds are available. This gives peace of mind to surviving owners who wish to ensure the continued viability of the business and avoid having family members disrupt the business. It also reassures loved ones that they can receive their inheritance in cash rather than become embroiled in a business they may not understand with partners unable to buy them out.


THE PRICE OF PROCRASTINATION


Many owners put off these crucial discussions but failure to make plans for the future is a dangerous business. The aspirations of the younger generations may change over time; children and grandchildren may become more involved. Consideration should also be given as to how to incentivise key employees, circumvent conflicts of interest and minimise the risk of dispute.


gavin.faber@IrwinMitchell.com


Contact Gavin on DDI: 0121 203 5366 or Phone: 0370 1500 100 Extension: 5366 @WillDisputes_IM


www.irwinmitchell.com


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