When you finally get round to leaving your family business, there is a lot to consider when you pass it on to someone else.
You want to make sure everything is done correctly and as smoothly as possible, giving you an easy transition period when you need it most.
After years of hard work building your business from ground up, you need to follow the best procedures to make sure you can rest assured your legacy is in good hands.
This post will explain the main things to consider when planning to pass on your family business.
First things to consider
If you are planning to pass your business on to another family member, you should first consider whether you want to retain any investment in the business.
By doing so, you will still benefit from some returns from the business but will still maintain some level of involvement and responsibility. Think about whether you want that or want to retire completely.
However you choose, the amount of time needed to prepare the handing over of your family business can vary. If you want your transition to run as smoothly as possible, you should start planning as soon as possible. This will give you plenty of time to choose your successor and make sure you’ve got all the bases covered.
With a long time to plan, you can make sure your successor is trained and understands the business well enough to competently take over the reins.
If said family member isn’t ready to take over, you should think about an interim successor who will run everything until the desired successor is ready to step up to the plate.
If you pass on your business, you may have to pay some tax – depending on exactly how you leave it.
If you sell your business while you’re still alive, you will need to consider capital gains tax (CGT) if the family member isn’t your spouse or civil partner.
Put simply, if you sell the business for more than you acquired it for, you will have to pay CGT on that profit (also known as a capital gain).
However, there is business asset disposal relief – a reduced tax rate of 10% against the regular rate 18% of CGT – on disposals worth up to £1 million. This is mainly available for sole traders or partners who have owned a business for at least two years before selling all or part of it.
If you decide to leave your business in a will, you will need to consider the cost of inheritance tax. The good news is that there are tax reliefs for this exact scenario. Business relief for inheritance tax means 100% tax relief can apply to an unlisted business or interest in an unlisted business being passed down to someone once you have died.
At PBA, our team understands that succession planning is a lot to think about, especially if you are still running the day-to-day operations of your family business.
We are on hand to provide you with expert advice on how to pass on your business in a tax efficient way.