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Wealth planning for business owners and entrepreneurs

Many of our clients are entrepreneurs or are involved in a family business. Of course, business and personal assets should be treated differently when it comes to tax and wealth planning, but we often find that our clients do not make any distinction between them. At the same time, their business and personal finances are not working in a 'joined up' way: issues that should be addressed on the personal side are ignored in business ventures and vice versa.

Protecting your business from the unexpected

It's vital to think ahead about events that could affect both your own and your business' wealth. For example, these two areas are often neglected:

  • Planning within the business for the possible death or incapacity of the owner or a major shareholder
  • Disposing of the company and how this could affect your estate.

If these possibilities are not considered and planned for, they will need to be dealt with urgently after the event, and could have expensive tax implications.

If you are involved in a company – whether you own it, work for it or hold shares in it as part of a family enterprise, ask yourself this question:

Do you know – exactly – what would happen to the company in the event of your death or incapacity; or the death of your major income producer; or the death of one of your fellow shareholders?

The correct answer is that it should be clearly set out in a document such as the shareholder agreement or partnership agreement. If your company does not have one, or it is not clear what would happen in any of the events above, it is time to revisit this.

Our wealth planning specialists are here to help and advise you

Working with corporate solicitors and accountants, our independent wealth planners can provide advice on whether you should insure the life of key employees and, importantly, whether it is commercial to do so. This kind of insurance can provide for the loss of cash flow and effectively keep the company going while the management looks for a replacement and adapts to the new situation.

The other crucial area to assess is what you, your family and the other shareholders would like to happen if any of you die or become seriously ill. For example, agreements can include an option, funded by insurance cover, for the remaining shareholders to purchase the shares of a shareholder who has died. This is a straightforward way of ensuring that the deceased's family receives the value of the shares, leaving the remaining shareholders free to run the company.

These are important questions – yet we often find that although our clients have thought about them, they have not taken any action.

Understanding the impact of selling your family business

You and your family may have no intention of selling your family business at the moment. However, it's essential to have plans in place for this possibility.

Business assets in a typical trading company receive favourable tax treatment on disposal; for example, if they qualify for business asset disposal relief (previously entrepreneurs' relief). Equally, where these assets are inherited by other family members, business relief will ensure that they pass free of inheritance tax (IHT).

Understandably, when it comes to selling up, the business owners are focused on the sale rather than its impact on IHT. However, failing to plan ahead can mean that the value of the business simply crystallizes into an individual shareholder’s estate, without the protections and allowances that safeguard assets within a business.

It is possible to shelter assets from IHT immediately after a sale, if an investment into ‘business relief qualifying’ assets is made within three years of the disposal. You would certainly need advice in relation to these investments, as many carry higher investment risk which might not be suitable for your circumstances. However, if you do not act within the three-year window, the ability to shelter any disposal proceeds is lost.

It is vital to plan an 'exit strategy' from the business as soon as possible, considering how you would arrange it and how it might affect your future retirement plans. Do you know what you will need, after tax, to achieve what you want?  How will you structure it? What actions should you take before and after the sale?

Take advantage of our experience and expertise

There are many ways to safeguard your own and your business' future security, and getting the right advice is essential to ensure you choose the best solutions for your unique circumstances.

While the chancellor has left entrepreneurs' relief untouched for now, we believe there could be changes in the future to help pay for the pandemic. So it’s best to maximise any allowances available today and plan carefully for the future in case things change.

We will be happy to talk you through all the possibilities and their impact on you and your business. We have a number of sophisticated planning tools, including lifetime cash flow planning, that can model out what the future could look like and show you the implications of different courses of action. We can also present a variety of options to ensure your wealth and assets are structured tax efficiently, giving you a clear picture of what you need to do for the security of your own and your family business' assets.

To find out how our specialist wealth planning team could help you, please get in touch with us on +44 02 7523 4500 or book a free consultation.

Further reading

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Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.

The tax treatment of all investments depends upon individual circumstances and the levels and basis of taxation may change in the future. Investors should discuss their financial arrangements with their own tax adviser before investing.

The tax treatments set out in this communication are based on our current understanding of UK legislation. It is a broad summary and cannot cover every circumstance and it does not constitute advice.

The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity.

Photo of Matt Phillips

Matt Phillips

Director of Wealth Planning


020 7523 4596

IMPORTANT: Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.