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For many of us our Business is like our baby and is certainly one of the biggest assets to consider when writing your Will.

 

Owning a business or holding shares in a business should be considered carefully when estate planning.

 

Why do I need to include my Business in my Will? 

You get to choose who the right person is to continue your work, who has the skill and the Will to run your business?

With no Will you could be burdening a loved one with a responsibility they are not equipped to deal with or cause conflict between your family on how to run the business.

 

Depending on how your business is set up affects have these are dealt with on your passing:-

Sole Traders

Once you pass away your business would also end and cease trading. The assets will pass to your estate.

The estate would be responsible for paying any debts and taxes and some of the business assets may need to be sold to do so.

 

Partnership

Once you have passed your interest in the partnership will pass to your estate subject to the conditions in your Partnership Agreement e.g. the other partners may have the option to buy your interest in the partnership before the estate sells or transfers to someone else.  Or your estate may have the right to require the other partners to buy your interest.

Would your family member have any control over the business? Again depending on the Partnership Agreement, potentially not and the day to day control of the business would lie with the remaining partners. 

Your estate may need to sell your interest to pay for any debts or taxes.  Following which any remaining interest/sale process would pass to your estate.

 

Limited Company or Public Limited Company Shares

If you have shares in a business you may be able to pass these on but you will need to check the terms in any shareholders agreement and the Companies Articles of Association . 

If you inherit shares you will have some control over wider issues and be eligible to vote in any AGM however day to day decision making would lie with the remaining Directors.

 

 

Business Property Relief

Business property relief is a form of tax relief and it enables you to claim inheritance tax (IHT) relief on any business assets or shares that you own (if the total value of your estate is over £325,000, there will be 40% inheritance tax charged on anything above that).

100% relief is for a business or an interest in business, as well as unlisted company shares.

You can get 50% business relief on land, buildings or machinery owned by the deceased if they were used in the business that they owned and controlled or were a partner in. 50% business relief is also offered on shares controlling more than 50% of the voting rights if the company is listed on a registered stock exchange.

 

Shares & Partnership – key things to consider

  • Check the terms of your partnership agreement or shareholders agreement

  • The age and ability of the intended recipient

  • How will the change impact the existing partners/shareholders?

  • Inheritance tax – how will the change affect the estate’s tax liability.  Passing on business assets could leave the estate open to a large IHT bill. 

  • Is your business eligible for Business Property Relief (BPR)

  • Often the advice would be to set up a Trust in relation to business assets so that these are held in the most tax efficient and flexible way for the estate.

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