Although many business owners may have a will in place, this may not be sufficient when it comes to the running of your business should something happen to you that makes you unable to deal with your affairs.
A Business Lasting Power of Attorney (LPA) and succession planning
It is important to consider who will deal with your business affairs if you no longer can. A Business Lasting Power of Attorney is an important tool for planning ahead and gives you peace of mind for the future. This can appoint someone else to run your business if you are no longer able to do this.
It’s important to think about who is willing and able to be a suitable successor, and whether they can be trusted and are capable of taking your business forward. This could be a family member but doesn’t have to be.
If it is a limited company, new directors should be appointed before you step down, but this isn’t always possible should something unexpected happen, which is why it is important to have plans in place.
Certain businesses and shares can qualify for Business Relief which means they are free of Inheritance Tax on death. It is very important that you review your business to ensure it qualifies.
For example, holding the wrong assets within your business can lose the Inheritance Tax exemption. It is best to check, otherwise you could be paying significantly more Inheritance Tax than you need to.
Business Relief is a potentially powerful tool that can help lessen the Inheritance Tax you pay.
There are three components to successfully claiming Business Relief:
1. Own ‘qualifying business assets’
2. Own these for at least two years preceding your death
3. Have the correct planning in your Will
A badly drafted will mean a significant increase in Inheritance Tax. A review of your will by a specialist can ensure that you do not pay this unnecessary tax.
Other issues to consider on succession
If you’re VAT registered, you may be able to transfer registration to the new owner. You may also need to sell any shares if you’re in a business partnership.
Selling or changing ownership of a company can produce complicated tax issues. So always seek professional advice.
Other key steps that need to be considered when preparing for business succession include:
- The structure of the business
- The possibility for option agreements
- What happens with shareholder disputes
What to do next
If you would like to discuss this in more detail to see whether Business Relief planning is something that could assist you when looking at Inheritance Tax or, how to set up a Business Lasting Power of Attorney please get in touch with your usual Milsted Langdon contact.