It is essential that you carefully consider who you would want to inherit your business when you die and how that might work in practice. A robust and well-written Will, along with any relevant succession planning considerations, can help to ensure that your interests are passed on to the right person and that you obtain the most tax efficient solution for your chosen beneficiaries.
In England and Wales, if an individual dies without leaving a Will the rules of intestacy will apply to their estate. As such, there is the potential for this to have unwelcome consequences in relation to both the inheritance tax position and the distribution of the individual’s estate.
What does this mean for me?
In the absence of a Will, your business or shareholding could end up passing on to someone who has little or no interest or experience in running it, or to multiple individuals which could potentially cause a conflict. In any of the aforementioned scenarios the end result could be that your business ends up losing value or may even have to be sold in order to avoid future complications.
It is therefore essential that you take specialised legal advice on your specific circumstances and prepare a Will to ensure that your estate is left in accordance with your wishes.
Can I pass on my business interests or shares to a family member?
This very much depends on the terms of your partnership agreement (if you have one) or the articles of association. If you have a shareholder’s agreement this may also have an impact on how shares can be left on the death of a shareholder. It is therefore important that these documents are reviewed when making your Will to ensure that the two documents can operate alongside each other.
Before preparing your Will, you will also want to consider how involved your proposed beneficiaries will want to be. This will help determine the best way to pass your interest on and can help with the overall succession planning of your business.
What about inheritance tax?
Leaving your business in your Will can mean your estate has to pay a large amount of inheritance tax. In some circumstances your executors may even have to sell shares or business assets in order to meet the liability. In either instances your business interests may be able to claim inheritance tax relief. It is therefore essential that you plan how your estate will manage inheritance tax in advance and take advice on what reliefs are available and how they might be applied to your estate.