Including a business in my Will
If you own a business, you may be wondering if you can leave it to your beneficiaries in your Will. The answer, as with many things, is not straightforward, and depends on the type of business you have. Either way, ownership of an organisation does affect how you structure your Will, and careful consideration is required for who you might want to take over.
Let’s have a look in a little more detail.
If you’re a sole trader, you are the single owner of the entire business. There’s no legal distinction between the person and the company, which means that all business assets can be counted as part of your overall estate. Of course, any liabilities or debts incurred would also be passed down, so that’s worth bearing in mind if you plan to leave the business to a relative.
If you’re part of a partnership, things become a little more complicated. You may have signed a partnership or shareholders agreement, which ultimately decides what happens to your share in the business when you die. As such, it’s necessary to ensure the agreement you have signed has been properly drafted by a professional. This will set out whether your shares go to a spouse or children, or whether your business partner will arrange to buy out your shares.
This again is somewhat complex. Most limited companies should have documentation in place that includes details of what will happen to an individual’s shares upon their passing. As with partnerships, the other shareholder may be given the chance to purchase your shares, but your interest in the business property may cease to exist should you pass away. Alternatively, you may have an agreement in place that your shares will transfer to your chosen beneficiary.
What Inheritance Tax issues are involved with passing on a business?
Some businesses qualify for a relief from Inheritance Tax (IHT), known as Business Property Relief. This can protect assets from Inheritance Tax liability if, for example, the payment of IHT would force a sale.
Eligibility for Business Property Relief is dependent on several factors. For instance, the asset must be in use in a qualifying business at the date of your death. The business must also be at least two years old. Two rates are available: 50% and 100%. If the full rate applies, then no IHT needs to be paid. On the other hand, if the business doesn’t qualify then its full value is included in your overall estate for IHT purposes.
By now, it’s probably obvious that passing a business to somebody in your Will is a complicated affair. With that in mind, it’s best to seek help from Kent tax advisors or a Kent accountant for probate services, so that everything is taken care of appropriately. After all, the last thing you want to do is leave your beneficiaries with a dispute on their hands.