If you have worked hard to build a business, you want peace of mind about what will happen to it when you pass away. Luckily, leaving a business is not as complex as you may think. Below, we discuss how to make the right choices when it comes to leaving a business in your will.
Consider the Business Structure
The first consideration to make is your business structure. This determines if you can leave the company in your will. For sole traders, as the only owner of a company, you can leave the whole business to whoever you wish.
When the company has other shareholders or partners it becomes more complex. Legally, you can leave your share in this company to whoever you want. However, you must decide if this is the right thing to do. Perhaps you want a family member to benefit financially from the gain of the business, but you may also have to consider if they have any interest in replacing you as a functioning member of the organisation.
In this instance, you will have to leave specific instructions about what happens to the share when you pass. Start by discussing this with the other persons in the business. This may give them time to prepare should something happen to you, perhaps by raising the money to buy one person out of the contract.
Intestacy Rules
Intestacy is the name given to rules that govern what happens to a person’s assets and finances after they pass if they don’t make a will. It is usually only married and civil partners who gain from intestacy rules though they will also apply if a will is not legally binding. When this happens, probate takes over and any sales of the estate, such as a probate house sale, can take up to 12 months. While there are ways to speed it up, such as quick sale companies who offer cash for homes, it generally takes some time and is a complex legal affair.
It is important because if a person in a business dies without a will, the rule of intestacy also takes over. The first £250,000 of their estate goes to a spouse, with the rest divided between children. If there is no spouse, it is divided by all remaining children. This can be hugely damaging to all involved at a time when grief will have taken hold.
Understanding Tax
Tax is another consideration to make when leaving a business in your will. Luckily, it is not as complex an issue as you may think. The UK government lightened the burden and red tape during the 1970s in a bid to keep more businesses open after death and keep the income tax rolling in.
When a whole business is passed onto someone, then a 100% relief is given on inheritance tax. Any assets, such as property and machinery, also have a 50% relief added to them. Finally, any voting shares in a company also have 50% assets.
Leaving a business in your will is legally, fairly straightforward if you get a good lawyer to draft it for you. Sit down with the people you intend to leave the business to, and anyone involved like partners, and talk. Larger limited companies should have procedures in place, but in smaller companies, you need to discuss all eventualities to limit damage.
Interesting Related Article: “Who are Inheritance Tax Consultants and What is Their Role?“