Succeeding at succession

Many business owners grapple with the issue of business succession which can, if not planned properly, become a difficult and protracted transition. In some cases there is no clear way forward and the business gradually winds down.

NW Brown writes:

There are however common themes which must be considered.

How to exit?

  •  Sale – immediate transfer or earn out period
  •  Next generation – pass to younger family members
  •  Retain ownership – appoint managers to run the business
  •  Employee Trust – passing ownership to the workforce is becoming increasingly popular

Common issues

  •  Valuation
  •  Next generation not interested / difficulty in finding the right buyer or manager
  •  Relinquishing control can be difficult
  •  How to fund the purchase
  •  Capital Gains Tax
  •  Loss of Business Property Relief and Inheritance Tax Planning
  •  Transition planning can take several years

Where Capital Gains Tax and the loss of Business Property Relief are concerns, we have seen many clients use specialist investment products which allow the deferral of Capital Gains and provide Business Property Relief. These benefits must be tempered against the investment risks involved as they receive valuable tax benefits due to providing either seed capital to smaller firms or are raising capital for less mature growing businesses.

The Office for Tax Simplification (OTS) is conducting a two stage review into Inheritance Tax with the second report issued on 5th July 2019. This raises concerns with some investments designed to benefit from Business Property Relief as the OTS see these arrangements as contrived and not in the spirit of the rules.

With complex tax matters we always recommend consulting a professional tax adviser. With business succession this should take place some time in advance and involve both legal and financial planning professionals to achieve a beneficial outcome and position appropriately for future financial security.  

For more information please contact your Wealth Manager, or alternatively call us on 01223 720 208.



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