Planning for succession
Posted on 1st July 2022 at 09:57
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 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. But you should seek further advice about this specific to your circumstances.
Business Asset Disposal Relief (formally known as Entrepreneurs’ Relief) – on the disposal of all or part of a business you can claim Business Asset Disposal Relief which gives a 10% gain on all qualifying assets.
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.
We are helping a number of clients with succession planning at the moment, if this sounds like a situation you need help with please get in touch.
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