Few have welcomed the changes to the economic situation and the impact on income levels and capital values that those changes have brought. It is however true that these changes have brought with them significant opportunities in relation to long term effective management of business succession planning. Managing succession to family business assets always provides a challenge to ensure that the success of the family business is preserved as it is passed down the generations while the value of the business is fairly distributed amongst the generations and those involved with the business.
Business property relief for Inheritance Tax and gift holdover relief for Capital Gains Tax provide significant protection for passing assets down the generations for a family tax efficiently.
Generally, assets in family businesses must be looked at alongside the family's non business assets in order to ensure that the entire family wealth is dealt with efficiently when considering taxation and the different needs of the various family members. The recession and the consequent drop in capital values means that these non business assets may be gifted down the generations more efficiently as greater quantities of assets can be transferred within the Inheritance Tax nil band to, for example, a family trust or other structures like family partnerships. Similarly, more non business assets may be gifted within the Capital Gains Tax annual allowance and the 18% tax rate means that tax costs of undertaking succession planning might well be significantly reduced.
The use of pension arrangements through SIPPs and SASSs might also be even more attractive during the economic downturn when the long-term benefit of pensions contributions might be significantly improved because of reductions in capital values.
Appropriate use of pre and post nuptial agreements in the family may also prove worthwhile when considering long term succession to the business.
While the recession will provide challenges to almost all business, it also provides family businesses with opportunities in relation to effective long-term planning for wealth preservation and tax mitigation.
Chris McGill is an associate at leading UK law firm Shepherd and Wedderburn LLP. 0131-473 5262