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Act now to protect your business for the future
During the course of our review meetings with HR3 clients, a number of business owners and directors have enquired about putting wills in place, tax planning and protecting themselves and their business from unforeseen events.
It is never too early to make plans to protect your business for the future. Matters which you may need to consider include:
- Your will – do you have one? If so, is it up to date?
- Business property relief – if you have shares in a business or if you are a partner within a business you may be able to take advantage of the rules relating to business property relief
- Lasting Powers of Attorney – putting in place legal documents which ensure decisions can be made if you lose capacity.
As well as ensuring your estate passes in accordance with your wishes, your will can also provide a means by which your estate passes in the most tax efficient way.
As a minimum, you should review your will every five years, particularly after any life changing event for example:
- Getting married (this revokes any will you made previously)
- Divorce or separation
- Having a child
- Moving house
- If the executor named in your will dies
Business property relief
If you have owned an interest in a business (eg a shareholding or partnership share) for more than two years, you should be eligible for business property relief (BPR) on the value of that interest upon death. This means that no inheritance tax is payable in respect of that interest.
If your interest passes to your spouse, he/she will also get BPR on their death providing they keep the interest in a trading company. However, if your spouse sells the business interest to the remaining shareholders/partners, the sum paid will simply be cash in your surviving spouse’s estate and will therefore be taxed at 40% upon their death.
To prevent this from happening, careful estate planning and the use of trusts means that this tax relief can be protected for your surviving spouse.
Lasting Powers of Attorney
In the event that you lose capacity, perhaps as a result of an accident, dementia or a stroke, you may need to rely on someone else to make decisions and deal with your affairs on your behalf.
A Lasting Power of Attorney (LPA) enables you to appoint a person or people of your choice to handle your affairs in this situation. There are two types of Lasting Power of Attorney, one for health and welfare and another for property and financial affairs.
Losing capacity without an LPA can result in a long and costly process for those trying to act on your behalf. It can also have a detrimental impact upon your business; it may mean that the business is unable to authorise invoices, sales orders, wage payments and may even result is the bank freezing your business bank account.
If you own an interest in a business, consider putting in place an LPA to cover your personal assets (appointing a relative or friend) and also an LPA to cover your business assets (perhaps appointing a business partner).
Want to know more?
For more information or to find out how we can help, contact Victoria Taylor in our Wills and Estate Planning Team to discuss your needs.