Inheritance Tax – here’s what family business owners need to consider

When it comes to succession planning in family businesses, there are many factors to consider, including the potential impact of Inheritance Tax (IHT).

IHT can be a significant expense for families transferring wealth to the next generation.

However, with careful planning, it is possible to minimise the tax burden while still ensuring a smooth transition of ownership.

When is IHT due?

When someone passes away, their estate may be subject to IHT if it exceeds the tax-free threshold of £325,000 (currently frozen until April 2028).

However, in many cases this value may be different, such as when the residence nil-rate band applies. This can increase the tax threshold by £175,000 to £500,000 where a person’s main property is passed to a direct descendant.

The value of your estate includes various assets such as property, investments, and savings.

If the value of the estate surpasses the thresholds above and you haven’t made use of additional reliefs, such as gifting, the IHT rate of 40 per cent will be applied to the excess amount.

If you are married or in a civil partnership and your spouse passes away, any unused IHT allowances can be passed to you.

However, there are several exceptions to these rules, and it’s crucial to keep track of the estate’s value regularly to determine if IHT will apply.

If you suspect that your estate will be subject to IHT and your beneficiaries will be responsible for paying it from the proceeds of your estate, it’s essential to understand the costs involved and explore ways to plan ahead and minimize the impact of these costs.

How to plan for IHT

There are various exemptions and reliefs available, such as the marriage allowance, which allows you to transfer your entire estate to your spouse tax-free, and the business property relief, which can reduce or eliminate the tax owed on a family business.

One of the most critical considerations in succession planning is timing. It’s essential to plan well in advance, as this will give you time to make the most of any available tax reliefs and exemptions.

Our Partner, Heather Bright, who specialises in Inheritance Tax matters, will work on your behalf to ensure that your tax liability is minimised so that more of your hard-earned money stays with you, your business and, eventually, your loved ones.

Because we stay ahead of the curve, we will make sure that any changes to the tax regime are reflected in our advice to you.

To find out more, please get in touch with Heather.