TBI: Planning for the future - your will and your business
BUSINESS owners inevitably spend a great deal of time focusing on the day to day management of their business. Whilst this is no doubt crucial, it is just as important to consider the wider picture and plans for the future once they have gone.
It is important that your Will is drafted, not in isolation, but in conjunction with your trusted business advisors, to ensure that it harmonises with the wider succession planning. All too often individuals have Wills put in place that contradict the provisions of the business’ governing documents, such as Partnership Agreements and Shareholders’ Agreements. Conflicting provisions in this regard can open the door to expense, unwanted litigation and stress for all involved, including loved ones.
The tax implication of death also needs to be carefully considered and planned for. On death, each individual receives a “nil rate band”, or an allowance that is not taxed, or taxed at 0%. This band is currently set at £325,000. Once over this threshold, inheritance tax is payable at a rate of 40%. In addition to the standard nil rate band, the residence nil rate band may be available if you leave property to your descendants. Currently the allowance is £125,000, rising to £175,000 in tax year 2020/21.
Business owners can benefit from an additional tax relief on death called Business Property Relief (“BPR”). BPR is subject to a number of conditions, including that the assets must have been held for at least two years. If applicable, it is available at a rate of either 50% or 100%, depending upon the structure of your business. Through careful tax planning, business owners can seek to make use of this important relief, and in some circumstances make use of it twice, to reduce the value of their taxable estate.
Putting in place careful planning for both your business and personal affairs can lead to significant tax savings on death and ensure that your wishes are carried out.
To speak to Jessica Morton regarding this or any other matter contact Tilly Bailey & Irvine Law Firm’s Barnard Castle office on 01833 638326.