It may seem like the most logical and simple thing to do to pass your business to a family member especially if they are already part of your business, but it is not as easy as it may seem, unfortunately.
There are many factors to think about before you start so that you can ensure that you do it the most efficient way and protect both your business and your family.
What factors do you need to consider?
When you are thinking about the succession of your business you are planning for the longer-term future of the business and trying to create stability for it beyond your working life. You probably have many ideas in mind but these need to be formally put in place so that they can be followed. This might include:
• Selecting who to pass your business/shares of your business to, and letting them know
• Deciding what proportion of your shares go to whom if splitting them
• Will you retain a position in the business or decision-making role after passing the business on?
• Will you retain any shares for yourself or your spouse?
• Will you be taking any money out of the business?
• How will you ensure continuity for employees and customers to minimise disruption and risk?
What might the tax implications be?
There are a few tax implications that you will need to be aware of:
Capital Gains Tax – like with the disposal of a property, the disposal of a business regardless of who that is to is subject to Capital Gains Tax on any assets. This gain can potentially be deferred until the gain is released in the future.
Inheritance Tax – this may apply in some cases, but business-property relief may apply to allow free transfers. There have been a number of significant changes in this area over the past few years, by successive Chancellors, therefore you should always seek specific advice about your circumstances before making any decisions that might affect your inheritance tax position.
Business Asset Disposal Relief (formally known as Entrepreneurs’ Relief) – on the disposal of all or part of a business you may be eligible to claim Business Asset Disposal Relief, which gives a Capital Gains Tax rate of 18% on proceeds up to £1M from April 2026.
If you want to understand the most tax-efficient way to dispose of your shares to your family, then contact us to have a discussion and we can assist you with tailored advice.
When should you start succession planning?
It is important to allow plenty of time for succession planning especially if the person/s are not part of your business already so that they can start to familiarise themselves with the business whilst you are still part of the business. Starting early means that if any issues arise or you exit the business earlier than planned, there is already a plan in place or started to continue with.
If you need any help with succession planning, please contact us.
As with anything, the rules change quite frequently and this does not constitute specific advice. You should always seek advice based on your own circumstances prior to making any financial decisions.
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