Being so focussed on the every-day running of your business and its success makes it easy to neglect to consider what will happen to it when you die. So, even if you have made a will, it may not really provide for business continuity.
Have you thought about what will happen to any business assets or shares you own when you die? Who will they pass to? Do you have business agreements that conflict with your will? Will inheritance tax be payable on business assets you leave in your will?
Click on the links below to jump to each section to find out more.
Who can your business interests pass to?
You can leave shares or business interests and assets to whomever you wish, but you need to take care that the proposed beneficiary of those business assets would actually want them, know what to do with them and how to do it. Your company could be in danger of failing in the future if it is left in the hands of someone who cannot maintain control. You should try to ensure that the beneficiary of any company assets:
- doesn’t have interests that conflict with any other owners or partners
- is not disinterested in the company and would just sell it on (unless of course, that is what you would want)
- has the ability, business knowledge and skill to deal with the responsibilities that are inherited with the assets or shares
Can other business agreements have an effect on your will?
When writing your will, you need to ensure that your bequests don’t conflict with any other agreements you may have in relation to your business, such as:
- shareholder agreements
- partnership agreements
- articles of association
These agreements may limit how your business interests are inherited and who has first call on them before they are sold.
Inheritance tax efficiency
Your nil-rate band – the amount you can leave before inheritance tax (IHT) becomes payable – is £325,000. If you are leaving your main residence to direct descendants there is an additional allowance known as the residence nil rate band (RNRB). Currently, the RNRB is £150,000 (2019/2020 allowance), so the full amount you can leave before IHT is payable is £475,000 at present. IHT is payable at 40% on the amount above the NRB and RNRB – unless you leave it to your spouse or civil partner, who inherit IHT free and who can also inherit any of your unused NRB and RNRB, so when they die, they will be able to leave up to £950,000 with no IHT being payable..
Some business assets are subject to an IHT relief, such as business property relief (BPR), which could mean that they do not attract IHT, no matter who they are passed on to as long as they remain business assets. You can also gift business assets that attract BPR to anyone during your lifetime without them being subject to IHT.
Issues relating to what happens to business assets that are sold after they have been inherited are complex and can lead to subsequent beneficiaries of an estate having to pay substantial amounts of IHT.
Leaving your business interests in trust
Leaving your business assets in a trust could be a way of ensuring that those to whom they are left, such as family members, maintain an interest in the business and its value, but do not have to deal with the everyday running of it. A trust can also relieve any issues where there might be conflict between a person’s will and other business agreements.
Using business trusts can also eliminate liability for IHT, as long as they are drafted properly. This is a complex area of law and should be discussed with a solicitor who has experience of dealing with businesses and business wills.
How can Graysons help?
Anne Rogers is head of Graysons’ private client team and is experienced in dealing with complex inheritance tax planning and helping business owners and managers to ensure that they leave their business and personal affairs in order, in the most tax-efficient, when they die.
*House of Commons Library Business Statistics 2018