Business owners have a lot of financial implications to consider throughout the course of their career. One of these considerations is how to pass the wealth generated from your business to family members tax-efficiently.
Planning as early as possible how you want to use the wealth you have accumulated to your loved ones will give you more options.
How to gift wealth from your business
Gifting assets you have made from your business can reduce your inheritance tax liability. However, it is important to make sure that you leave yourself enough for later life. A financial adviser at Four Wealth Management can work with you to make sure you are using all of your available tax-efficient allowances.
There are some Inheritance Tax planning solutions that allow you to gift assets while keeping control over the gift in case you do need to access the money in later life.
To find out more, book a no-obligation meeting with a financial adviser. The first meeting can be face to face at your home address, at one of our offices or by telephone or zoom.
How to reduce Inheritance Tax when exiting your business
If you are selling your business and expecting to receive a large cash sum then it is important to plan ahead what to do with the money.
Some business owners exit their business in stages and receive payments over multiple tax years in order to utilise various tax allowances in each tax year.
Not planning ahead might mean that you put all of the assets from the business sale straight into your estate and then they could be liable for up to 40% Inheritance Tax.
Does a business pay Inheritance Tax?
A trading business qualifies for business relief and is exempt from Inheritance Tax. However, once the business is sold then the cash proceeds will be assessed for Inheritance Tax. Planning what to do with the cash from your business before you receive it will give you the opportunity to work with a financial adviser to understand what the tax implications will be for you and your family.
Does a business pay Inheritance Tax?
Business relief means that you can gift a business with no Inheritance Tax implications.
While the business is trading you can gift direct shares or shares into a trust. This can also help you to defer any Capital Gains Tax liabilities that have arisen.
Gifitng shares of your business also means that they are not in your estate for Inheritance Tax purposes.
Gifting shares into a trust will give you more control and protection over the shares.
If you do not want to gift shares, then another option is to gift excess dividend income that they do not need. However, business owners will need to pay dividend tax on this before gifting it.
The tax implications of gifting part or all of your business are complex, and it is important that you seek advice.
Book a no-obligation meeting now
Passing your business assets through your Will
If you do not wish to gift your business sale proceeds until you die then you can leave them to your loved ones in your Will.
This means you have complete control of the assets during your lifetime and you do not have to worry about how much you should gift or worry about running out of money in later life.
However, this means that it is likely that your assets will be liable for Inheritance Tax which is 40% over the nil rate band of £325,000. You may also be eligible for the residence nil rate band of £175,000 if you leave your home to a child or grandchild.
There are ways to mitigate Inheritance Tax through your Will such as establishing a Trust through your Will.
How we can help
To discuss the most tax-efficient ways to gift assets from your business, we offer a no-obligation meeting with a financial adviser. Meetings can be at your home address, at one of our offices or on zoom/telephone.
Book a no-obligation meeting now
The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.
Will writing involves referral to a service that is separate and distinct to those offered by St. James’s Place. Wills are not regulated by the Financial Conduct Authority.
Trusts are not regulated by the Financial Conduct Authority.
