Inheritance Tax (IHT) is a tax that is paid on the estate of a deceased person. As a business owner, IHT planning is an essential aspect of financial planning to ensure that your loved ones do not pay more tax than necessary upon your death.
Business Property Relief (BPR)
BPR is a tax relief that can be claimed on business assets. It allows for a 100% reduction in IHT on qualifying business assets, including shares in unlisted companies, sole trader businesses, and interest in a partnership. To qualify for BPR, the business must be trading at the time of death and must not consist mainly of investment activities.
Gifting
Gifting is a common IHT mitigation strategy. Business owners can gift assets to their children or other family members during their lifetime. If the gift is made seven years before the owner's death, it will not be included in their estate for IHT purposes. However, it's important to consider the impact of gifting on the business and to ensure that it does not compromise the financial stability of the business.
Trusts
Trusts can be an effective IHT mitigation strategy for business owners. A trust is a legal arrangement where assets are held by a trustee for the benefit of a beneficiary. Trusts can be set up during a person's lifetime or in their will. Trusts can provide control over how assets are distributed after death, as well as potential tax benefits.
Life Insurance
Life insurance is a way to provide financial security for loved ones in the event of the business owner's death. It can also be used to pay any potential IHT liability. The policy can be held in trust, which means that the proceeds will not be included in the business owner's estate for IHT purposes.
Succession Planning
Succession planning is the process of planning for the transfer of business ownership and management to the next generation. It's important to plan for the potential IHT liability that may arise upon the transfer of business ownership. Succession planning can include gifting, trusts, and other IHT mitigation strategies to ensure a smooth transition of ownership.
It's important to note that what we have included above is merely guidance, and you should open a conversation with us to start work on active succession planning. Additionally, the potential tax liabilities that may arise upon death and to implement effective strategies to mitigate these liabilities. Business Property Relief, gifting, trusts, life insurance, and succession planning are all strategies that can be used to reduce the IHT liability on a business owner's estate. We recommend working with us directly to ensure your estate works best for you personally.