Wills And Business Owners

Wills & Business Owners

Do you have an interest in a business?

Is Your Will Tax Efficient?

If you have an interest in a business it is important that you ensure that your Will makes full use of the exemptions that are available to you in order to reduce your family’s inheritance tax (“IHT”) liability.

Most trading business interests (sole traders, a partner’s interest in a partnership or shares in a private limited company) that have been owned for two years or more will normally attract Business Property Relief in the estate of the owner on death. If these assets are left on death directly to a non-tax paying beneficiary such as a surviving spouse the benefit of Business Property Relief is wasted and the business asset will also form part of the surviving spouse's estate on their death. Therefore on the death of the surviving spouse the full value of the asset remaining in the surviving spouse's estate will be subject to Inheritance Tax if the business asset has been sold by the surviving spouse.

The inclusion of a Business Property Trust in your Will provides that any relevant assets attracting Business Property Relief can go into the Trust tax free on death. The trust assets can then be distributed to your nominated beneficiaries free of Inheritance Tax on the death of your surviving spouse as the Trust assets do not form part of your surviving spouse's estate. Consequently the total value of the assets in the Trust are ring-fenced from Inheritance Tax.

The Business Property Will Trust is Discretionary in nature with the potential beneficiaries normally named as your surviving spouse and your children and descendants. Your nominated Trustees will have power to apply the income or the capital of the Trust to any of your named beneficiaries. You will leave a separate Letter of Wishes for your trustees providing guidance as to how you would like them to deal with the trust assets following your death. In most cases this will provide for your surviving spouse to be treated as the main beneficiary whilst she is alive in order that she can receive any amount of capital or income that she requires so that she may live in comfort for the rest of her life. Subject to that the assets can be divided equally between your children if prevailing circumstances then deem it to be appropriate.

There is also potential for a further IHT saving. On present legislation it would also be possible for the Trustees of the Trust to consider a sale of the business asset eg, company shares, to a beneficiary of the trust at open market value. It would therefore be possible, following your death, for your surviving spouse to purchase the shares from the Trust. If a sale takes place to your surviving spouse and your surviving spouse survives two years from the date of acquisition of those shares then on the death of your spouse further Business Property Relief can be claimed in respect of those shares which have been acquired from the Trust on purchase. In such case the shares passing through your spouse's estate will therefore not attract Inheritance Tax. When purchasing the asset from the Trust your spouse could use assets from her estate which do not qualify for Business Property Relief thereby reducing the size of her taxable estate for Inheritance Tax purposes also.

Summary

The Inclusion of a Business Property Trust in your Will means that any relevant assets attracting 100% Business Property Relief can go into the Trust tax free with the beneficiaries being your surviving spouse, children and descendants. The assets can then be distributed to your nominated remaining beneficiaries free of Inheritance Tax on the death of your spouse. Consequently the total value of the assets in the Trust is ring-fenced from Inheritance Tax.

For further information please contact :

Gary Taylor

Director

Progressive Wills Ltd.

Tel : 07543238543

Email : [email protected]