By Heather Bright, Partner
Succession planning in family-owned businesses is a more complicated task than simply passing along the reins to the next generation.
It is a big moment, and we have helped many people successfully navigate what can seem like an almost impossible task.
There are so many emotional ties to work through, but these cannot be allowed to get in the way of a calculated consideration of market-based valuations and tax considerations.
On top of this, you need to find ways to keep the trust and confidence that you have spent years building.
With so much to juggle, we break down the key things that will help you navigate this turbulent time.
Are you thinking about goals and objectives?
However, you handle succession planning, it is a time of immense change for the business.
Even handing the company to a direct descendant will usher in a new era as different aspirations and priorities come into play.
Rather than resisting the idea that things will change, it is a good opportunity to lean into the change and stay a part of the conversation.
Have a chat with the person who is going to take over the business and find out what they have in mind for the future.
While it might seem scary to hear how things will change, it is an opportunity to offer some friendly advice while you still have your foot in the door.
Together, you can work to redefine the goals and objectives of the business at this point of transition.
If you aim to settle employee anxieties while giving the new manager a clear path forward to get them going, having an open discussion is the best way to achieve this.
You also need to take steps to determine how the business will be divided between multiple heirs if they are all interested.
Should every child receive an equal share, or should those who are actively engaged in the business be given greater influence?
Your employees likely feel that the answer is clear, but you may want to consider what is best for a harmonious transition.
You should also decide whether you want to maintain a minority stake or fully exit the business and leave it in the hands of others.
What tax considerations should you keep in mind?
As with everything in life, there are important tax considerations to keep in mind when determining the best path forward.
Inheritance Tax (IHT) hangs around like a spectre on all financial dealings that involve family, and a business succession is no exception.
As succession counts may count as gifting, it is subject to the same considerations as other gifts that seek to reduce your estate.
Any gifts given within the seven years before your death will be taxed under varying rates for IHT, and only gifts that fall outside of that time are tax-free.
While the true solution for succession planning to avoid IHT would be to know exactly when you are going to shuffle off this mortal coil, we cannot help you predict that.
We can help you lessen the blow of any tax you will pay on your business shares.
Utilising Business Property Relief (BPR) can reduce IHT by up to 100% on qualifying business assets held for at least two years.
For tax considerations while you are still alive, you might want to take notice of Capital Gains Tax (CGT).
Transferring shares can trigger CGT, so it may be necessary to restructure share classes ahead of the transfer.
This can allow gains to be deferred or reduce them to mitigate the CGT.
Using trusts or Family Investment Companies can be a tax-efficient way of transferring assets down the generations.
Seeking professional advice is the best way to manage this process, as it needs to be conducted with compliance to avoid facing penalties.
We understand how emotional this time can be, and we want to help you do what is best for your family and your business.
Let us handle the financials so that you can focus on safeguarding your business’s future.
Succeed with succession. Speak to our team today!