Later Life Planning

Business Insights

In the 18th century, the British were dismissed as "a nation of shopkeepers" by someone who may (or may not!) have been Napoleon Bonaparte. This was later qualified as: "I meant that you were a nation of merchants, and that all your great riches, and your grand resources arose from commerce, which is true."

Despite this obvious backpedalling, whoever said this was probably close to the truth. We have an excellent history of commerce and entrepreneurial nous in this country and such a mindset has not diminished over time.

As of October 2022, there were approximately 5.51 million private businesses in operation in the UK1 and 64% of the UK's labour force want to start their own business2 demonstrating that our historic entrepreneurial spirit has not waived.

For an individual running a successful business, at some point thoughts may turn to succession planning, and how to preserve hard-won financial and commercial achievements for the next generation. And there will never be a better time than the present to make plans. Even if it means acknowledging that, at some point, you will need to segue your empire to someone else.

Lasting Powers of Attorney

Put bluntly, the majority of my work stems from grief and loss. This is not only from bereavements, but in cases where someone has lost, or is losing, their mental capacity. Unfortunately, humans have an inherent optimism bias and assume such things can only ever happen to other people. People do have a habit of putting off planning for these particular "rainy days".

Lasting Powers of Attorney ("LPAs") were introduced in 2007 and allow individuals to nominate individuals ("attorneys") to act for them under particular circumstances. There are two forms of LPA, one for Financial Affairs and one for Health & Care decisions.

For a business owner, an LPA could be made which limits Attorneys to act on the Donor's behalf only in relation to their business. From a practical perspective, ensuring the smooth continuation of the business means not only protecting your own interests but also those of your family and your employees.

Estate Planning

Every individual in the UK has a Nil Rate Band ("NRB"), which is the value of your estate (i.e. everything you own) which can pass free of inheritance tax ("IHT") to your beneficiaries. This is currently set at £325,000 per person3. NRBs can be automatically passed between spouses, so potentially a surviving spouse's estate could have up to £650,000 free of IHT (large lifetime gifts can reduce this, however).

There is an additional "residence nil rate band" available if a family home is passed to direct descendants (although there is a "claw back" if your estate is over £2million). This is currently set at £175,000 per person4.

Assets passed between married spouses/civil partners are free of IHT. However, if you are not married to your partner, and do not have a will, your partner would not be entitled to anything from your estate.

If you survive your spouse and own significant business assets, it is possible that these can be passed on to your children or other beneficiaries without an IHT liability on them.

It is likely your business's value makes up a significant portion of your estate. Although, as outlined above, there are reliefs that every individual has to set against potential IHT, what if your assets far exceed these?

Business Property Relief ("BPR") reduces the value of a business or its assets when calculating the IHT due on an estate (or on gifts made during a lifetime). BPR is not applicable if the company mainly deals with securities, stocks or shares, land or buildings, or is in making or holding investments (which includes investment property). Additionally, businesses which are not-for-profit or being sold or wound up are not eligible.

100% BPR can be applied to a business or interest in a business or on shares in an unlisted company (if owned for the requisite two year time period before someone died or the gift was made). It is worth discussing your specific circumstances to assess whether or not BPR would be applicable and at what rate.

Everyone's circumstances are different and owning a business does create a certain degree of complexity. I strongly recommend speaking to a professional about your wishes for the future and to work out the best way to put them in place to ensure your goals are achieved.

  1. UK number of businesses 2022 | Statista

  2. SME Loans

  3. Inheritance Tax nil-rate bands

  4. Inheritance Tax thresholds and interest rates