As a business owner, you are probably aware that your company shares could be free of inheritance tax (IHT) provided the assets qualify for full business property relief (BPR). With IHT charged at a rate of 40%, this exemption can represent a significant saving.
Without careful thought however, there is a risk that BPR can be wasted entirely. Commonly, business owners who are married may leave their business assets, along with the rest of their estate, to their spouse. On the face of it, this would make sense as there is a 100% IHT spouse exemption, regardless of the value of the estate. However, structuring the will in this way may not be as tax-efficient as it seems. If the surviving spouse sells the shares, the cash proceeds would not benefit from BPR on their death and would be taxed at 40%. Further, BPR is a very generous relief and there is periodically speculation that it will be restricted or withdrawn in the future.
So, what can you do to protect the BPR on the death of one party whilst ensuring that the surviving spouse is able to benefit from the business interest? The most flexible solution is to leave the business assets to a discretionary trust via your will. There will be no IHT charge on the gift into the trust because the assets will still qualify for BPR. The beneficiaries of the trust will be the spouse, children and grandchildren. When the spouse dies, the assets will not then form part of their estate and so will not be taken into account for the purpose of calculating IHT.
One of the main advantages of this structure is the flexibility it provides. The trustees (one of whom could be the surviving spouse) can restructure the trust and benefit the family to suit the circumstances that exist at the time.
We regularly advise business owners on the options available to them. We do this by getting a clear picture of your objectives. We will then work together with you to find a solution that meets your needs in the most tax-efficient manner.
To start a conversation about how we can help you get the outcome you want
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