Succession Planning

Planning ahead is critical to the future of any business. Time will come when the owner of the business will want to exit and pass on the operational control of the business to other family members or sell the business to a third party. Managing any potential tax liabilities as part of any transition is key to protecting your wealth and the value of the business.

There a number of basic planning steps which can be taken to mitigate or reduce potential taxes including:

Capital Gains Tax (CGT)

CGT will potentially arise on the sale or transfer of any business interest. Valuable reliefs are available to mitigate this liability but certain conditions need to be met and planning in advance is essential to securing these. One such relief is Entrepreneurs’ Relief (ER) which will reduce CGT to 10% (as opposed to 28%) on the first £10m gain. This is worth £1.8M

Another valuable relief for family businesses, in particular, is Gift Relief which can defer the taxation of a gain until ultimate disposal of an asset. Once again conditions need to be met and planning in advance is essential.

Inheritance Tax (IHT)

IHT isn’t only a death tax as it can potentially arise during a lifetime. In both cases, taking advantage of some of the reliefs that are available can often substantially mitigate a liability. Some examples include:

Business Property Relief (‘BPR’) & Agricultural Property Relief (‘APR’) - there are exemptions for transfers of business property and agricultural property which meet certain criteria.

Nil rate bands - a present the nil rate band for IHT is £325,000 and you should ensure that this is fully utilised to limit the IHT exposure.

Potentially exempt transfers - generally lifetime gifts to individuals (not covered by one of the above exemptions) are classed as potentially exempt transfers. IHT will only become payable if the transferor dies within 7 years of making the gift.

Trusts – the use of trusts introduces flexibility into IHT planning. For example, in certain situations it is possible to gift business assets into a trust whilst continuing to derive income from the asset.

RSM Tenon can help by offering a number of specialist succession planning ideas. Examples include:

Capital reduction – reducing a company’s share capital/premium and returning surplus capital to the shareholders.

Company purchase of own shares (CPOS) – returning capital to shareholders through a company buying back its own shares from its shareholders.

Entrepreneurs Relief solutions – reorganisation of share capital to secure eligibility to Entrepreneurs’ Relief.

As with any tax planning the circumstances of the individual will need to be taken into consideration. RSM Tenon can offer a planning strategy which meets your specific circumstances.