If you are a business owner, protecting your business in the event of your death should be an essential part of your estate planning considerations.
You will have put in a lot of time and effort into growing and nurturing your business, and it’s likely that part of your motivation will have been the thought of being able to pass it on to your children or grandchildren on your death.
But if you do not take the necessary steps to protect your business, the total value of it – including business property and all assets – could well fall within the value of your estate and leave your heirs with a large IHT bill payable. This could even lead to your business having to be sold to ensure the bill can be paid.
So, it is important to ensure there are effective plans in place to protect your business in the event of your death.
The Importance Of A Succession Plan
The best way to protect your business is by making sure you have an up-to-date Will in place that clearly outlines how you want your business distributed.
As with your other financial assets, this can prevent any legal claims on your business such as creditors and any divorced spouse.
You will want to ensure that plans are in place regarding issues such as the running of the business and distribution of your shares.
An effective succession plan can mean that the business will continue to operate effectively and successfully in the event of your death.
Business Relief Can Help Reduce IHT Liability
Using Business Relief reduces the amount of IHT payable on the transfer of qualifying business assets. For some assets, the reduction is 100%, which means the asset is effectively exempt from IHT.
You can get a reduced rate of 50% relief on the land, buildings or machinery owned by your business. This is particularly important as those are likely to form a big percentage of the overall value of the business.
You can also get 100% relief on a business or interest in a business, as well as shares in an unlisted company.
In all cases, you need to have owned the business for a minimum of two years before applications for Business Relief are valid.
You should be aware that there are exceptions and separate rules for various types of business in different sectors, so getting advice from a specialist estate planner when you are drawing up your business succession plans is essential.
Key takeaway – If you own a business you should take the necessary steps to ensure your family gets to make the decision about what to it on your death, rather than HMRC.
You should also ensure you have a succession plan reflected in your Will and other financial arrangements.