Category: Article

LET’S TALK – SUCCESSION PLANNING FOR YOUR BUSINESS

An entrepreneur who builds up a successful business will naturally want to make sure that his (or her) life’s work continues to flourish after they are gone.  They may not want their heirs to fight over it, dispose of it or even liquidate it if they cannot agree.  Just like planning what to do with one’s estate and making specific bequests in a will, the entrepreneur needs to plan for the future of the business.

In the worst-case scenario, which we see surprisingly frequently in practice, an entrepreneur or business owner is the sole shareholder and director of his company and dies unexpectedly, leaving the business in limbo and the executors and family with a problem.

Obviously, it is better to plan for one’s own ill-health and mortality during one’s lifetime by choosing competent people to join the board and diversifying the ownership of the shares.  In a family company, difficult choices may have to be made to bring some family members but not others into the business, whether as directors or shareholders.  The important thing is to make plan for the future, and start implementing it in good time. 

As the shares in the company will form a substantial part of the entrepreneur’s estate, tax planning is essential.  Many options are available.  They should make a will and take advice on, for example, making lifetime gifts of shares to other family members or setting up a family investment company or employee benefit trust. 

A director must exercise his duties and responsibilities personally.  In principle, they cannot be delegated to others.  They cannot be exercised by an attorney acting under a general power of attorney, nor under a lasting power of attorney (which is used mainly to protect a donor who loses mental capacity).  Thus, if the sole director and shareholder dies or loses capacity, there will be no one left who has authority to manage and run the business or even appoint a new director.  The company’s bank account may be frozen and new directors cannot be appointed until probate has been obtained, the shares have been transferred and the new shareholders can resolve to do so.  This takes time, so it is essential to have at least two directors to ensure that, if something happens to one, the other can continue to run the business. 

Planning for your succession can be difficult, but we are skilled at listening and advising business owners and their families on structuring their affairs and managing change. 

If you would like advice on succession planning for your company or your overall estate, please speak with Stephen Morrall (corporate) or Rachel Mainwaring-Taylor (tax and estate planning). 

The 2024 UK budget, delivered by Chancellor Rachel Reeves, marks Labour’s first budget in over a decade. This year’s budget centres on new tax policies, support for public services, and measures to address the cost-of-living crisis. Emphasising fiscal responsibility and growth, it includes substantial tax increases and targeted spending cuts. Here’s a look at the main components of the budget with comments from our team of experts on how they might directly affect you or your business:

Tax Increases and Adjustments

The budget introduces approximately £40 billion in tax rises to meet funding needs across various key sectors. Notable tax changes include:

• Corporation Tax: Happily, there have been no major changes in corporation tax.  The top rate will be capped at 25% and the small profits rate of 19% will continue to apply for the rest of the current Parliament.  Capital allowances, the current rates of R&D tax relief and the Patent Box regime will remain unchanged.

• Private Equity:  Tax on the profits earned by equity fund managers known as carried interest, i.e. the share of the profits that the fund manager receives when they sell investments, will be increased by 4% to 32% from April 2025.  The government will consult over the introduction of a new regime for carried interest to be introduced from 6 April 2026, under which carried interest will be treated as trading profits and become subject to income tax and National Insurance contributions.
• Capital Gains Tax: Capital gains tax rates have been increased with immediate effect to 18% (basic rate) and 24% (higher rate), with no separate rates for residential property. “Whilst this was expected, many will be relieved that they remain lower than had been speculated, and still significantly below income tax rates.
• IHT: The thresholds for IHT (nil rate band and residence nil rate band) and long-established rules around lifetime giving (i.e. the ‘seven year’ rule) remain unchanged. 

• Agricultural Property Relief and Business Property Relief: There is less good news for farmers and business owners, with restrictions to Agricultural and Business Property Relief taking effect from 6 April 2026. These previously unlimited reliefs will only apply in full to qualifying assets up to a maximum value of £1million. After that, relief will be restricted to 50%. On a more positive note, APR will be extended to environmental land management (from 6 April 2025). These reliefs allowed farming and other businesses to be passed on free of inheritance tax, and without it such businesses may have to be sold to pay the tax.  Tom Bradshaw, president of the National Farmers Union, has pointed out that the average farm in England would be worth more than £1m, so farmers and large landowners, who are often asset rich but cash poor, will be particularly hard hit.  The move seems to be aimed at private and institutional investors who have been buying up farms to avoid paying inheritance tax.  Anyone with agricultural or business property should review their estate plan and wills in the coming months. This is a significant curtailment of the reliefs, but there may well be alternative ways to structure an efficient succession plan before April 2026, advises MEUM estate planning specialist, Rachel Mainwaring-Taylor. 
  
• AIM Shares: Relief for AIM shares will be restricted to 50%, so anyone who has invested in this way for tax efficiency as part of their estate plan should seek advice.
  
• VAT on Private School Fees:  The VAT exemption on private school fees will be removed from January 2025.  It will be interesting to see what effect this has on schools’ budgets and the affordability of private education. 
  
• Unused Pension Funds: A major change is the announcement that unused pension funds and pension death benefits will be brought within the scope of inheritance tax from 6 April 2027.  As further details emerge, individuals may need to consider reviewing any nominations they have in place, as well as how they use pensions as part of their overall financial planning. 
  
• Stamp duty Land Tax (“SDLT”): From 1 November 2024, where a company purchases a residential property, it will pay a surcharge of 5% or 17% (increased in each case by 2%) on top of the normal rate of SDLT.
  
• Air Passenger Duty (APD): From April 2025, higher APD rates will apply to premium and private jet passengers to better reflect inflation and discourage excess emissions. This will see passengers paying £2 more for the cheapest seats and 50% more to fly on private jets.

Non-Doms and other International Individuals

The major reforms, from 6 April 2025, will be:

• The replacement of the remittance basis with a new, more limited, Foreign Income and Gains (FIG) regime, shielding FIGs from UK tax for the first four years of UK residence for those who qualify and opt into the new regime. 
• The abolition of non-dom status and the replacement of domicile status for tax purposes with a new residence-based status. 
• The abolition of excluded property trust status (bringing such trusts within the UK inheritance tax regime).

You should seek advice as soon as possible if:

• You are currently claiming the remittance basis
• You have an excluded property trust 
• You are currently UK tax resident but not yet deemed domiciled for IHT purposes

Although domicile status will no longer impact UK tax exposure, it remains relevant for succession and other legal purposes. Not everyone will be impacted in the same way and bespoke advice, tailored to your specific circumstances is needed says Rachel Mainwaring-Taylor.

Employment costs

The cost of employment is increasing: The biggest impact on businesses is made by the increase in the rate of employer’s National Insurance contributions. They increase from 13.8% to 15% from April 2025 and, in addition, the threshold at which employers start to pay National Insurance for an employee will reduce from £9,100 to £5,000.  However, the Employment Allowance which an employer can deduct from its overall NIC bill now applies to all employers, (regardless of the size of its last year’s NIC bill) and has been increased from £5,000 to £10,500 from 6 April 2025. 

The minimum wage rates are also increasing from April 2025. Together these measures will increase the cost of employing staff by almost 11% for a full-time worker on the minimum wage.  That cost will be borne entirely by the employers which, in practice, is likely to result in employers awarding lower wage rises, cutting the number of jobs and engaging fewer new recruits.  The measures are likely to have the greatest effect on small businesses and entrepreneurs. 

“Employers looking to restructure should seek professional advice before doing so”, says Corporate and Commercial Partner, Stephen Morrall.

Conclusion

The 2024 UK budget represents a substantial shift in fiscal strategy, with increased taxes on high earners and expanded social spending. The Chancellor appears to have ignored warning, from the private client industry, of the exodus of wealthy foreigners from the UK. The abolishment of the ‘non-dom’ status from April 2025 and the changing landscape may well make the UK a less attractive destination for wealthy individuals and families and foreign businesses. Those who are most likely to leave are those that are concerned about the rise in capital gains tax. As Peter Ferrigno, Director of Tax Services at Henley & Partners correctly points out, ‘[wealthy individuals] may have done some research in the past few months and found that places such as the United Arab Emirates don’t tax at all. Rather than stay and pay, the ability to reduce that 20 per cent down to zero remains tempting.’

If you would like to seek further advice on how you might be affected by the changes or if you are considering a move, please contact one of our experts:

Stephen Morrall – Corporate & Commercial Partner

Rachel Mainwaring-Taylor – Tax, Wills & Estate Planning Partner

Sofia Syed – Founder Partner for general advice on MEUM services