Many people who own a business spend so much time running their business and dealing with day to day issues that they don’t spend enough time thinking about succession planning for that business and the impact their own death will have not only on the business but their own family.
Recently I came across a case where Mr Roberts had passed away owning a 51% share in a meatpacking business. Mr Roberts’ share of the business at the date of his death was worth £2,000,000.
Mr Roberts was married with 2 children and he left his entire estate under a very simple Will to Mrs Roberts. After a dispute with the remaining shareholder, details of which will be discussed in a later blog, Mrs Roberts finally sold the shares and walked away with £1,500,000. Sadly just over a year later Mrs Roberts herself passed away leaving her assets to her 2 children.
Mrs Roberts’ children thought that because their father had owned the business the value of his shares would pass to them free of inheritance tax as they had heard of something called business property relief. This may have been the case had the shares been in their mother’s name but their mother simply had cash. After looking at the value of their mother’s other assets (a house worth £650,000) there was an inheritance tax liability of £600,000. With some planning, the inheritance tax liability on Mrs Robert’s death could have been £0.
This blog has highlighted the need to consider inheritance tax when thinking about your business assets but it does not consider the workings of the business and the disputes that can arise if succession planning is not carefully considered by all shareholders.
Find out all about this in part 2 in the next week…