Business Relief: protecting your legacy in succession

How can you protect your business after death with business relief? It’s all about including the worst-case scenario in your business planning, questioning what happens to your enterprise when you die, thinking of succession and inheritance. Answering these questions is crucial when making productive use of the lucrative business relief.

Succession

The TV series ‘Succession’ tells of business magnate Logan Roy – and his unwillingness to bequeath his vast empire to his children. With the series finale attracting millions, it’s the age-old story of inheritance gone awry.

This story will always resonate. In the UK, just 44% of adults have a will. A further 42% haven’t even spoken to anyone about what happens when they die. Women also lag men in wills: 39% versus 50%.

The problem with dying without a valid will is that your money may not go to those you’d like it to. The rules essentially say the first payment goes to a spouse or civil partner (provided you’re still together at the time of death). The ceiling on this payment was increased quite considerably last year, and it is free of inheritance tax (IHT).

After that, children come into the picture. Grandchildren and great grandchildren rarely feature. These are subject to IHT – and, according to the latest data, the tax is putting more money than ever into Government coffers: £5.76bn.

Your will and your business

And then there’s your business.

There are 5.6m private business in the UK, employing 27.5m people.

What happens to your enterprise, and its people, in the event of your death? Can they survive without you? Do you plan for them? Or do you go full Logan Roy and let the rats fight in the sack?

Let’s set the TV drama aside for the moment – and consider more reasonable options.

There are several risks in not thinking about, or planning, for your business. It could be an existential issue. If you’re the founder and leader, who will match your passion and drive? Perhaps the business will wither and die?

And then there are financial costs – might former colleagues and loved ones either miss out on future income or gains? Or perhaps even end up out of pocket?

If you don’t have a plan, consider staff morale. Might your key people lose faith and drift away? Might hiring become more problematic? And what do you say to clients about it?

One sensible consideration is to avoid all this and dispose of the business in an orderly, sensible and financially beneficial manner.

Business relief

Another is to plan properly for succession. You could bring your children into the business early and ensure they understand its workings and strategy. Such planning helps to avoid any unwanted surprises …

… including IHT. This is because of Business Relief.

This government measure reduces the value of a business or its assets when working out how much IHT must be paid. Any ownership of a business, or share of a business, is included in the estate for Inheritance Tax purposes.

You can get 100% Business Relief on a business or interest in a business – and shares in an unlisted company.

You can get 50% Business Relief on shares controlling more than 50% of the voting rights in a listed company; land and some other assets owned by the deceased and used in a business they were a partner in or controlled; and land and some other assets used in the business and held in a trust.

The relief is only available if the deceased owned the business or asset for at least two years before dying.

The relief is not applicable to cash. So, if you’re storing up cash in the business to manage your tax position, and then die suddenly, your successors may face an IHT bill on it.

However, you can also give away business property or assets while you’re still alive. Your estate still qualifies for Business Relief on IHT, provided its assets qualify.

Business Relief is a very handy tool.

Proper planning

Owning a business always brings difficult decisions on complex considerations.

Your tax position – as we’ve seen – is very likely to be one of them.

One way of making things simple is to plan early. This will probably mean taking legal and financial advice. Being so equipped can help give you, your staff, your firm’s customers, and your family more certainty.

If you’d like to discuss your business and how you might plan, we’d be only too happy to listen and advise you. Please get in touch on hello@firstwealth.co.uk or call 020 7467 2700.

[1] https://www.imdb.com/title/tt7660850/?ref_=fn_al_tt_1

[2] https://www.nationalwillregister.co.uk/news/two-fifths-of-uk-adults-not-discussed-instructions-after-death-new-wills-report-finds/#:~:text=Less%20than%20half%20of%20UK,%3B%2055%25%20of%20women).

[3] https://www.gov.uk/government/statistics/inheritance-tax-statistics-commentary/inheritance-tax-statistics-commentary

[4] https://www.gov.uk/government/statistics/business-population-estimates-2023/business-population-estimates-for-the-uk-and-regions-2023-statistical-release

[5] https://www.gov.uk/government/statistics/business-population-estimates-2023/business-population-estimates-for-the-uk-and-regions-2023-statistical-release#:~:text=total%20employment%20across%20all%20private,employment%20remained%20unchanged%20at%2061%25

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.