If you run your own business, have you ever considered what might happen if you were to pass away? While non of us like to picture the worst-case scenario, when you have a family it’s crucial to plan ahead.
Transmitting the business to your family may be a great way to protect their future. However, before you do, there are a few things you need to know. Here, you’ll discover why it might be time to invest in your heritage and the top things to consider before you do.
What are the benefits of giving the business to family?
Leaving your business to your family ensures they have some level of financial protection when you’re gone. It also helps you to keep the business in the family. If you’re a sole trader or you own 100% of the business, the decision is yours over who to leave it to. However, if you’re a partner in a business or you own less than 100% of the shares, it can be a little more complicated.
There are clear benefits of leaving the business to your family. However, one thing you need to be aware of is inheritance tax (IHT). You’re going to need to value the business accurately to ensure your relatives don’t end up paying too much tax. It can be tricky working around IHT, so it could be a good idea to contact professional legal services to help.
Watch out for Inheritance tax
Inheritance tax needs to be paid on any estate left to relatives which totals more than £325,000. It also might not need to be paid if it’s over £325,000 but you’re leaving it to your spouse. However, you’ll still need to let HMRC know about the estate or business, even if it falls below the threshold.
For estates that are above the threshold, inheritance tax is charged at 40%. It’s important to note that this is only charged on the amount that’s over the threshold, not the full cost of the estate.
Can you reduce the amount of inheritance tax?
Businesses do get some relief from inheritance tax. They get this in the form of Business Property Relief (BPR). You’ll either receive 50% or 100% BPR on the company’s assets. It’s important to note that not all business types will qualify for this relief. If you deal with mostly stocks and shares, or you run a property business for example, you won’t be eligible for BPR.
Overall, deciding to leave your business to your family can really help to protect their financial future. However, you do need to consider the implications in terms of inheritance tax. It is also definitely worth looking into what BPR you or your relatives could be entitled to.