It’s essential that if you own a business, you then plan not only how to run or grow that business, but also look to at what will happen to that business after you’ve gone.
Whether you’re hoping to pass the company onto your children as an inheritance of sorts, or are thinking of putting together an exit strategy, it’s vital that you start planning now, if nothing has yet been put in place.
One of the key discussions which must take place when carrying out succession planning for a business is how the new successor is likely to be taxed by taking on this role.
In some instances, you as the current owner may choose to gift the business at the time of your death or at the point of retirement, to your children. Alternatively, you may instead choose to incorporate the proceeds of the outright sale of your business into your personal savings to fund your retirement.
In either instance, you should ensure that your finances are in a healthy state and that all transactions and accounts are clearly documented.
Should you transfer the business either through a sale or as a gift, this will be normally be classed as a capital gain and you will be taxed on the proceeds at 28%, although if you quality for enterpreneur’s relief, this amount will be reduced to 10%. Remember however, that if you transfer shares to your spouse, this amount will not be classed as liable for capital gains tax.
It may be that if you gift your company to one of your children, they can then delay or “hold over” the capital gains tax due, until the point at which they themselves sell the business. With regards to inheritance tax, this gift would potentially be exempt from all IHT, should you survive for at least another seven years after making the gift.
There are many pieces of tax legislation and reliefs available to help with effective succession planning. Ask a succession planning expert for advice.