When setting up a new business, it is an exciting venture with the prospects of making money and providing for your family, but something that is often forgotten is what should happen to that business on death.
Presumptions are made that another family member will continue running it or the business will simply wind up, but the options are not often discussed and estate and inheritance tax planning opportunities are lost. If your business assets satisfy the relevant criteria, it could benefit from Business Property Relief (BPR). The relief is given at either 100% or 50% of the value of the asset or interest.
Business Property Relief applies to qualifying business assets (which means business interests or assets in an active trading business) which have been owned by the deceased for a minimum of two years before death. Interests or assets in an investment business will not receive the relief. For example, if you were to purchase a portfolio of properties, place them in a company and rent them out.
It can sometimes be unclear whether the relief will apply as a business can consist of a mix of activities, some of which are investment and some of which are trading. Also any money held within a business which is not required for the running of the business will not benefit from the relief.
For a business person who is married and ultimately wishes to benefit their children or other heirs, the relief can best be exploited by not leaving the qualifying business assets to their spouse (especially if there is a real prospect of the spouse disposing of them during his or her lifetime and so losing the reliefs). The best way to use the relief would be to incorporate some planning within your Will depending on your specific circumstances. In conjunction with your Will, you should also review any relevant Shareholders’ Agreement or Partnership Agreement as the provisions within those documents may also impact the application of Business Property Relief. Our Corporate team can help you with these documents.
For more information about Wills for family businesses, please contact a member of our Wills & Wealth Planning team.