NEWS EXTRA
persons you don’t want may end up running the company. Alternatively, it might dilute your business share so you may set up future family quarrels.”
And Lynn agrees. As she’s experienced, uninvolved family members can inherit shares directly and want a say in the running of the business, even if they do not have the skills or experience to be involved: “Using a trust means the beneficiaries would not have a direct right to any interest in the business and therefore no direct influence.”
Away from incorporated businesses, sole traderships cease on death unless there are provisions for succession. And if there is a partnership with no partnership agreement in place, the business will stop on the death of one partner. Here Chaloner advises that if there are articles of association or partnership agreements, they should be reviewed periodically to see whether they are compatible with the Will provisions.
Wills don’t have to be taxing A key concern for Chaloner is that having no Will can create tax liabilities with no options for mitigation.
She says that “forethought allows one to structure an estate so as to reduce liabilities quite legally by ensuring all appropriate reliefs can be claimed and options can be considered such as the creation of trusts, which may reduce tax liabilities, or gifting the right part of the estate to the right beneficiaries to be able to claim [the right] allowances in full.” And these allowances are valuable says
Deane. She explains that the inheritance tax allowance is currently £325,000 for an individual, or £650,000 for a couple who are either married or in a civil partnership. On top of this is the Residence Nil rate Band which, from 6 April 2017 gave an additional allowance of £100,000 (£175,000 by 2020/21) to be used against a home, provided it’s left to children or grandchildren.
One allowance of particular use to business owners is Business Property Relief (BPR). Lynn says that this is available for “a business or an interest in a business, as well as land, buildings, plant and machinery used for the purpose of the business and shares in unquoted trading companies.” She says that BPR is currently awarded at 50% or 100%; it is a very generous relief and it is possible that its use will be curtailed in a future budget. She advises clients, when planning succession, to “ensure your business will qualify for BPR. Businesses must be trading to qualify, and if the proportion of assets held in investments is too high it may not.” Lynn adds that it also important to remember that “if the business owns ‘excepted assets’ - assets owned by a trading business but not used in the business - the value of these will be deducted from the value of the business and they will not benefit from relief.”
Regular reviews
Both Chaloner and Lynn agree that Wills should be reviewed at least every five years to ensure they still reflect the likely estate and there has been no change to wishes.
www.buildersmerchantsjournal.net January 2020
Deane is more aggressive and suggests annual reviews. Even so, Chaloner says that “they should also be reviewed on major life events such as marriage, divorce, births of children, grandchildren, or the creation of a business.” Lynn thinks that regular reviews will ensure that company documents, such as articles of incorporation and shareholders’ agreement, accord with the wishes set out in a Will. “For example,” she says, “some family businesses may only allow shares to be passed to direct descendants of the founder. A spouse or stepchildren would not be included so if a Will leaves company shares to a spouse, but the company’s constitution does not allow this, the gift will fail.”
By extension, Lynn adds that it is just as important to ensure that business documentation does not prevent an estate from benefitting from BPR: “If company documentation includes a binding contract for sale whereby the deceased’s shares must be sold to the surviving directors or partners, then BPR will not be available.” A solution to this problem that she highlights is a ‘put and call’ option, giving each side the option to sell or buy, but without any obligation.
In summary
A Will is often not thought about. Whether through time pressures, no desire to think about the inevitable or a misunderstanding of the law with an assumption that an estate will go to the right destinations, not having a Will is fundamental part of personal planning that is so easy to fix. BMJ
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