Q2 2021

16 | Q2 2021 Sep20472 the businessowner should make any potential heirs who are their nephews or nieces, or other relatives, aware that the businessowner wishes to pass the business on to them, in the hope that they will be happy with this arrangement and prepare themselves to take on and run the business in due course. “Whether it be the children, nephews or nieces, or other relatives who are to be the successor to the business, for this purpose it may be appropriate for them to start working in the business, if they are not already doing so, so as to familiarise themselves with the running of the business before taking it over.” There is also the issue of whether or not the next generation is capable of running the business successfully, with businessowners often having to make the difficult decision to recruit external talent in order to ensure suitable successors. “This is a sensitive topic as the child or children of the current businessowner may be very disappointed if their parents do not pass the business on to them. The estate of the parent (once deceased) may even be faced with a claim by the child or children under the Inheritance (Provision for Family and Dependants) Act 1975 (which is a subject for proper professional advice in each case) if a parent does not pass the business on to the child or children, particularly if the child has been employed in the business.” Robert explains that often accountants are very familiar with the workings and personnel of a business, as well as with the businessowner and their family. In this case, he recommends that it may be appropriate for the businessowner to have a confidential ‘heart-to-heart’ conversation with their accountant about the suitability of their children or others to take over a business if the businessowner is in any doubt. “If the current businessowner does conclude that their own offspring or adopted child or children are not well-suited to taking over and running the business, and there are also no other relatives who could step into their shoes, then the current businessowner may wish to think about whether any of the existing employees of the business might be suitable successors to the business, perhaps in return for some payment if feasible (and suitable contract terms might be negotiated). “Alternatively, the current businessowner may conclude that the only answer is to look for a third party outside buyer for the business. If this option is taken, then the current businessowner should start taking steps to find an external buyer comfortably in advance of the current businessowner’s retirement and ideally while he or she is still running the business to their own optimum capabilities, so that the current businessowner is in the best bargaining position for selling the business and the business itself is in the best possible shape.” Robert encourages businessowners to discuss succession planning issues with their accountants and, if applicable, their solicitors in order to seek the right solution for them. In many cases, it will be appropriate for the accountants and solicitors to instruct Tax Counsel (such as Robert himself, who also takes instructions direct from individual businessowners through the Bar’s online directaccessportal.co.uk) to craft the right bespoke solution for the businessowner. “While there are standard models or forms for life interest settlements and discretionary settlements, this is an area where no definitive advice can be given in an article of this nature, and a businessowner should seek expert professional advice and a bespoke solution which suits the businessowner and his or her family in each case. This is because the tax considerations (whether they be inheritance tax, capital gains tax, stamp duty land tax, income tax, corporation tax, and value added tax), taken together with the personal dynamics of the particular businessowner and his or her family, will never be the same in two cases. “Businesses can be very different, and just one example is the fact that, unlike a company which just buys and sells “widgets” (which is obviously “trading”), an investment business will not attract inheritance tax business property relief although, even in the case of businesses with investments, there are nuances to the availability of business property relief which should be the subject of expert professional advice.” Robert leaves us with his three pieces of advice for businessowners regarding the subject of succession planning. “My number one piece of advice is to make sure that whoever is to inherit the business is capable and serious about taking it on. Most businessowners do not like to think that the business which they have created and nurtured will be undermined and ruined by an incapable successor. “Secondly, hopefully such a capable and serious successor or successors can be found in the children, nephews or nieces, or other relatives of the current businessowners, but, if not, an employee or third-party external purchaser may be appropriate. “Thirdly, it is also very important not to leave succession too late so that the business declines because of the state of health of the businessowner. Therefore, if a businessowner finds that their health is deteriorating significantly, they may wish to consider early retirement and handing over (or selling) the business to a successor or purchaser with effect from that earlier date. In the meantime, the prospective successor (i.e. if the business is not to be sold to a third party outside purchaser) should ideally be prepared for the succession by having actual experience of working in the business. “Finally, I wish to conclude that succession to a business is a topic which needs to be planned well in advance not just at the human level of “who will succeed to it” but also from the financial and tax perspectives.” “My number one piece of advice is to make sure that whoever is to inherit the business is capable and serious about taking it on. Most businessowners do not like to think that the business which they have created and nurtured will be undermined and ruined by an incapable successor.

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