Leaving a legacy: estate-planning considerations for business directors
At a glance
- It’s important to consider the legacy you want to leave as part of your financial planning.
- You’ll need to think about what you want to happen to your business and when. Will you pass it on to family, and do you want this to happen in your lifetime? And if you sell, what will you do with the proceeds?
- You also need to look at how to leave your assets in the most tax-efficient way.
Reviewing your plan regularly with your financial adviser is crucial.
What legacy do you want to leave for your loved ones? Whether you’re a business owner, an employee or retired, that’s a question everyone should be asking themselves. But it’s often something that people don’t think about in enough detail, even though we find most of our clients have very strong opinions on the matter.
Business directors are always going to be busy people – often more than anyone else – but it’s vital to carve out some time to put a concrete plan in place to ensure your wishes are carried out.
Here are some of the most important considerations and actions you need to take.
Step back and think
Before you move on to the practical side of things, sit down and think carefully about what kind of legacy you want to leave. This is a crucial part in the financial-planning process – and something we can support you with.
Questions to consider might include:
• Why are you doing what you’re doing?
• What do you want to leave?
• Do you want your children, grandchildren or other family members to inherit the business or your stake in it?
• Do you want this to happen during your lifetime?
• Or, if you won’t be passing the controls to your family, what other arrangements will you need to make to ensure your loved ones benefit fully from the fruits of your hard work?
Think about what will happen to your business
As a business owner, you’ll have the added complexity of needing to consider what will happen to your business assets as well as your personal ones, and create a strategy that takes both into account.
If you plan to let go of the reins during your lifetime, you may want to pass on the business to a family member. However, they may not have the aptitude or the interest to run it, in which case, thinking about your succession planning – both at retirement and if you were to die before then – is important.
If you plan to sell the business, you’ll obviously need to think about when and how you’ll do that, and to whom, as well as what you’ll do with the proceeds, as you may suddenly have a huge lump sum on your hands that becomes part of your personal wealth.
Ensure your tax planning is in order
Tax planning is an important way of preserving as much of your wealth as possible. Here are some of the main things to be aware of.
- A trading business will currently qualify for 100% business relief, which means it’s broadly exempt from Inheritance Tax (IHT). So, if you were to die when you held your business and it’s passed on as part of your estate, it wouldn’t be subject to IHT, assuming you meet all the requirements.
However, the rules are changing from 6 April 2026 the current 100% rate of agricultural and business relief will only apply for the first £1 million of combined agricultural and business property reducing to 50% thereafter.
- If you sell your business during your lifetime, you need to consider a few areas:
- The recent budget also brought in changes for Business Asset Disposal Relief (BADR). The current 10% rate on the first £1m of qualifying disposals will increase to 14% in April 2025 and again to 18% in April 2026.
- On disposal, you may have brought a large amount of capital into your personal estate that wasn’t there before, and this could be liable for IHT when you die.
- You’re likely to have been drawing a healthy income from your business, so you need to think about how you’ll replace that in an IHT-efficient way that also gives you security over a long period of time, to ensure you don’t run out of money.
- In many cases, trusts are often a good solution, as they protect your capital from IHT by removing it from your estate while certain trusts allow you to draw an income.
- It’s also worth using your annual gifting allowance: you can give up to £3,000 per year that will be exempt from your estate.
- Don’t forget your pension. As well as the tax advantages, there’s the fact that it’s your money and not the company’s – so if anything happens to your business, your pension pot can still be passed on separately.
- When it comes to Capital Gains Tax (CGT), if you gift your stake in your business to your children or another family member, they’ll inherit the base cost if you use giftholder relief. That allows you to move shares around the family without having to worry too much about CGT, as you’re effectively deferring the liability.
Have the right team around you
When it comes to legacy planning, your financial plan is just one aspect. You’ll need to combine that with legal advice and business tax advice. Having your three key professionals – your financial adviser, lawyer and accountant – all pulling in the same direction is vital.
Review regularly
Tax laws are constantly changing, your personal circumstances may vary from time to time, and new and unexpected business opportunities could arise. It’s therefore crucial to review everything with us on a regular basis.
We will be able to help you construct an overarching legacy plan in the first place, then update it as and when required to ensure it’s fully aligned with your wishes.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.
Trusts are not regulated by the Financial Conduct Authority.
SJP Approved 13/12/2024