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How to successfully pass on a family business in your Will

View profile for Rachelle Nuttall
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Dealing with the financial affairs of someone who has died

Many people have had a lot of extra time on their hands as life has slowed down in recent months given the current pandemic. During March and June there was a significant increase in business start-ups, a website which assists in creating your own website saw an increase of 340% in traffic to their site during this time. 

Have you been dreaming of working for yourself or decided to embark upon that idea you have had for years?  Has your business benefited from increased online sales during lockdown? You may want to think about the business continuing should you pass away unexpectedly or simply plan for the future.  It is both beneficial and a lot simpler than you may think to ensure that your business continues to thrive whilst providing for your loved ones when you are no longer here. 

There are also tax benefits in dealing with your business within your Will including both savings on potential Capital Gains Tax if the business assets are disposed of during your lifetime and inheritance tax savings by way of including Business Property Relief up to 100%. 

How your business is passed on depends upon the type of business, for example whether you are a sole trader, partnership or a limited company. 

In respect of a sole trader, you may feel that the business effectively ‘dies with you’ as you are the business, however, if you have a keen apprentice within the family then you may choose to ensure that the business and assets pass to them within your Will. Of course you would need to ensure that those you are gifting the business to are capable and able to fulfil the role, whilst being keen they may lack the necessary skills and expertise to take the business forward.  As a sole trader, this is the most simple of businesses to pass on in your Will as there are little restrictions. 

Partnerships can be a beneficial in respect of Business Property Relief however, if there is no partnership agreement in place then upon the death of one of the partners, the partnership will dissolve. It is therefore very important to ensure the partnership agreement can provide for the death of a partner and include provisions in respect of how their share will pass for example to family members. Shares can be valued at that point to allow family members to receive the value of the same if they do not wish to have an active role in the business or there may be the option for them to retain the shares and have a day to day role. Our commercial department at Stephensons Solicitors LLP would be happy to advise, amend or create a partnership agreement for your business. 

Shares in a limited company and how these pass in the event of death are generally detailed within the shareholders agreement.  Shareholders need to be careful of these agreements as many contain clauses that upon death, the interest ceases leading to the executors of your estate effectively selling your shares to existing shareholders resulting in cash to the estate which will not qualify for Business Property Relief and therefore subject to inheritance tax. You need to be careful of gifting shares within in a limited company as this may alter control within the company and bring on board a family member or beneficiary with no experience who ultimately could have majority control leading to issues with other shareholders who may not be family members.   

It is important to think about the family and your beneficiaries as a whole, if you leave your shares or business to one member of the family who may have an active role within the business during your lifetime, how are the others going to feel?  It is beneficial to have the business valued in order to ensure that there is a fair division of the assets upon your passing, those who are not involved in the business can be compensated by receiving an equal share of other assets in your estate.

There are therefore several issues to consider when leaving a family business within your Will but the benefits certainly outweigh the planning and we would strongly encourage you to seek advice from a solicitor in respect of planning for the future and how the business will pass, this may not only allow the business to continue but be tax efficient and ensure a fair division of your assets.

If you would like to discuss how we can assist with succession and estate planning for business owners please call us on 0161 696 6238 or complete our online enquiry form and a member of the team will contact you to discuss your requirements.