The Secrets of Succession: Part Two – post budget changes you can’t ignore

In this further article we consider some of the more specific tax and financial issues related to business succession. Inevitably, with the dust having just settled on the Budget pronouncements, we look at what these mean for business owners in a succession planning context.

These were perhaps in summary a case of “bad news, but not as bad as it might have been”, at least as far as succession planning goes.

There was no “row-back” on the previously announced changes limiting inheritance tax business and agricultural reliefs to 50% of the value over and above £1m, there was never going to be (the “bad news” bit). However fears of additional tightening of the rules did not come about. No removal of the CGT uplift on death, no alignment of CGT rates with income tax, and no extension of the seven year cumulation period for IHT (the “not so bad” news).

Although there was some unexpected bad news concerning employee ownership trusts (EOTs) which have become an increasingly popular succession mechanism for business owners in the right circumstances, where the CGT exemption previously available on transfers to EOTs was reduced to a 50% relief.

So what are the issues that now have to be addressed?

For business owners and farming concerns, the reality is now established that an IHT liability may have to be faced up to at some stage when previously there would not have been one. This means that the merits of passing on the family business or farm may need to be considered sooner, subject to the need to retain personal wealth into later life. Tax planning considerations should never be a reason for later regret over giving away too soon.

For many businesses the strategy will now have to seriously address how likely IHT liabilities can be mitigated or deferred and ultimately funded. Will this be by building a fund to pay the eventual tax and how will this impact operational activities? Or will a partial or full exit be an attractive option?

For some business owners it may become more attractive to consider a structure which enables wealth to be passed on whilst retaining a degree of control. A suitably structured family investment company may assist with this and many more business owners are considering the use of trusts after a period of years when these have possibly been less favoured. For business or farm owners who wish to transfer business interests into trust, this should almost certainly be done prior to 6^th April 2026, whilst the existing 100% business relief still applies, though the new rules applying the restricted relief can still bite later.

In the next article of our series we will look at some of the actions and strategies business owners should consider in terms of maximising the exit value of their business and the routes to exit which might be available.

Click here to read article 1 from Jim’s succession series

This article was written by Kirk Newsholme Corporate Tax Consultant, Jim Meakin. Jim works in conjunction with KN Tax Director, Clare Thomas. For further advice over anything covered in these articles or on wider tax related matters, please contact Jim or Clare.