Separating Your Business from Your Estate
A business is likely to account for one of the most significant portions of your estate. If you run a business as a sole trader (or if you are the sole director) and you own all of its assets, you could find that the value of your estate increases significantly. While for most people the family home is the most valuable asset, many business owners find that this is overshadowed by business premises, equipment, machinery and the like.
Clearly, this poses some difficulties in the field of inheritance - and specifically Inheritance Tax (IHT). Currently the Inheritance Tax Nil-Rate Band (that is, the upper threshold above which an IHT liability will be incurred) is set at £325,000. In its first Budget, the coalition government announced that this threshold would be frozen until at least 2014. Once the values of the family home and all business assets are combined, many business owners find that the value of their estate is significantly in excess of this figure. As such, in order to minimise your tax liabilities you may wish to seek ways of separating your business from your estate.
The way in which you separate your business from your estate will depend in great part on your exit strategy - that is, the way in which you intended to divest yourself of the business. However, trusts are useful in many circumstances.
Passing a Business OnIf you are intending to pass the business on to a beneficiary (for example a child or spouse), but the individual in question is not yet ready to run the company, you may consider placing the whole business in trust until this time. This will rely on you finding suitable trustees, who will be responsible for running the business on a day-to-day basis. There are a small number of companies established specifically for this purpose.
It should be remembered, though, that the tax reliefs granted to entrepreneurs and business owners can sometimes mean that this course of action is not necessary. IHT and CGT reliefs available to you are discussed in detail elsewhere in this section.
Selling Your BusinessAlternatively, if you are simply planning to sell the business, you will need to consider ways in which you can separate the proceeds of the sale from the remainder of your estate. This can be achieved with more standard trust procedures. For example, you might choose to establish a discretionary trust. This would enable you to provide an income for your dependents, while retaining significant control over the way in which the money is disbursed. Trustees of discretionary trusts have a good deal of freedom in determining how the contents of the trust is treated, and it is frequently possible to nominate yourself as a trustee.
When looking at a separation of business and estate, it is vital that you consider the degree of control you wish to retain over the business. This will be determined by your exit strategy, and in great part by the means of separation. As such, it is very important that you seek dedicated professional advice on business succession and trust planning before taking any decision regarding the future of your company.