Planning your financial future
If you are the owner or involved in a family business there are a number of very important things you should consider to control and protect the family’s business from external threats. These will help you to plan for your future, especially in these uncertain times.
This is a complex subject and your personal circumstances will determine the appropriate financial planning advice we can give you. This is only a summary and there are many other factors to consider.
What are the external threats?
There are 5 main external threats which could have an impact on the future of your business; these are the possible mental instability or emotional susceptibility of family members or those involved in running a business, taxation, insolvency, divorce and claims against the estate.
Who needs protection and how can you do this?
Those working in the business and the wider family group should be protected. This includes people not working in the business but who own shares or business assets.
Different individuals will have different income and capital requirements, e.g. some may need more income as they have sufficient capital but low incomes, others may have good incomes but would like capital and/or voting (strategic) control so that they have a say in the running of the business?
Action you may wish to consider is the fragmentation of the ownership of the business through lifetime gifts, splitting share capital into different classes and amending the Articles of Association. You could also look at a preparing a family charter, pre-nuptial agreements and Lasting Powers of Attorney and consider how the operational control of the business is managed.
The use of Family Trusts and Wills
By using Trust and Wills you can separate the control of the business from the economic value of the business. Trustees should act impartially, and if they are not beneficiaries of the Trust they will have no personal financial motive for making certain key decisions. A Trust could also provide centralised decision making and long term asset protection and control. Trusts can last 80+ years, and the original owner as Trustee can control the business without remaining an actual owner for a considerable period of time.
By preparing an up to date Will you can achieve control, certainty and protection.
Entrepreneurs Relief
You can reduce the Capital Gains Tax rate on a disposal of a business or assets used in a business from 18% to 10%. An asset can qualify after only one year of ownership. There is a lifetime maximum of £1million although the exemption can be used over a number of transactions and Entrepreneurs Relief.
If you would like advice on planning for your financial future, please do not hesitate to contact one of our team.
Sharon Richardson
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