Your Business Could Face Implications from Inheritance Tax

26th July 2015

The business has been in your family for generations. It’s seen war and economic decline, but here it is, still going strong. It’s as much a part of your family as your own mother, and like her, it has persevered through the warp speed, rollercoaster of time.

You’ve taken care of every administrative matter. Long nights have been spent developing a marketing strategy, and, then, you’ve revised it once this new era of technology dawned. Business plans have been written, loans have been taken out, and loans have been paid in full. You did your duty to Queen and Country by always paying your taxes on time.

A new beast – apt term for Inheritance Tax –  now stands in your midst, and you’re not quite sure how to tackle it. There are several factors that determine whether or not it will affect your business.

Inheritance Tax

Business owners should get all of their legal affairs in order before they pass on if it can be helped. In general, the worth of your estate (i.e. business and home property, money, and possessions) must be more than £325,000 for the Inheritance Tax to apply to you. Lawyers and accountants should be able to help figure out the value of these things.

If the value of your estate is above the £325,000 threshold, 40% must be paid (or 36% if you donate 10% of your estate to charity). Who pays the Inheritance Tax depends on a few factors. The person named in the will (executor) or the person who handles the estate in absence of a will (administrator) is responsible for paying the tax. Someone who receives an inheritance may not have to pay the tax but may have to pay other types of tax.

Business Relief

Business Relief is available to business owners when valuing the estate to determine Inheritance Tax. Your business’ value is reduced, possibly making it the deciding factor in whether or not you pay the tax.

To qualify for 100% relief, you must (obviously) have a business or interest in it, or you must have shares in an unlisted company.

You’re eligible for 50% relief on shares that control over half of a listed company’s voting rights and on the physical furnishings of a business such as land, buildings, and machinery as long as the deceased was a partner or in control of them.

Businesses not eligible for relief are ones that deal in investments, land/buildings, securities, and stocks/shares. Not-for-profit organisations are not eligible, as well as businesses that are being sold.

Other factors apply so look over them here. It’s important to note the deceased must have owned the business for at least 2 years to qualify for Business Relief.

You want to keep your business in the family for many generations to come. There’s no doubt they will face economic and financial hardships like past generations, but you can help those future owners by taking care of matters now and passing on what you’ve learned.