Did you know, that here in the UK, 3 in 5 small businesses have no succession plan at all.
In this article, Jack Bennett discusses succession planning and provides some top tips on how to get it right.
The objective of every parent is to be able to provide for the family they will leave behind.
However, it is surprising how few have a clear plan to do this in a measured way that maximises wealth for future generations.
What is a succession plan?Put simply, it is a way of ensuring firstly that the right people and processes are in place for the day that you retire and walk away. And secondly that you have a plan to protect your assets and pass these on to the next generation in a controlled way. Both aspects are equally important, but in this article, I’ve chosen to focus on the latter.
Asset protectionEvery individual has different circumstances, but one thing is for certain, to ensure that your assets go to the people/places you would like it to, you need a proper plan. Some points to consider are:
- Decide where you want your assets to end up
Will your share in the business go to your children or grandchildren? Who will get a share of your house and other assets when you pass away? Is your will correctly drafted to take this into account, including recent changes in business structure?
- Make sure your assets are inheritance tax friendly
Some assets qualify for exemption from inheritance tax, some do not. Every individual has an IHT nil rate band allowance of £325,000 (which doubles for a married couple), and some will benefit from the Residence Nil Rate Band. Any assets not qualifying for exemption that exceed these nil rate bands will be subject to tax at 40%.
Plan your income requirements into retirementIn passing the reins to the next generation you need to ensure your assets work for you and provide the income you need, regardless that it is probably less than it once was. On the flip side, there is no point in accumulating more income than you need as this can cause other problems (see the next point).
Start to pass your assets on before you mustThere's one main reason for this: inheritance tax (IHT) The further in advance you pass assets down the family, the more chance you have of preserving these from the taxman or your local council.
The last point is a fundamental one, but sometimes it doesn’t feel very comfortable passing things on particularly to younger family members until they are a bit older and more experienced. Also sometimes point 4 above can get in the way of point 3 – you need the assets to give you an income into retirement.
What you really need is a way to ‘have your cake and eat it’ – to pass your assets down the family but keep control of them until the time is right to let go completely.
If you think this could affect you, or if you are at all unsure, you should get competent professional advice. We’ve got an interesting solution that will help with this, contact us at firstname.lastname@example.org or call 02476673160 to find out more.
Please note: This article is provided for information only and was correct as at time of writing (05/07/22). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance. No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.