Many shareholders and business owners are under the reasonable but erroneous impression that they do not need to think too deeply about inheritance tax because their company or business will be fully covered by Inheritance Tax Business Property Relief. This relief exempts shares in qualifying companies and business from Inheritance Tax on their death.
And many of them are right…. in principle anyway.
However, the vast majority of company and business owners will be very surprised to realise that there are usually potential Inheritance Tax problems lying just beneath the surface and which may not come to light until after they have passed away. By that stage there will be very few opportunities to put things right. Leaving an unanticipated tax bill of 40% of the value of affected business assets is not the sort of legacy the family, and successors to the business, will relish. Indeed, the requirement to settle the tax within 6 months of you dying could cause cash flow problems.
HM Revenue & Customs will, given that the 100% Business Property Relief is so valuable, go through your last 3 years accounts with a fine tooth comb to disqualify you from the relief where there is any chance of them doing so …. and in many cases they will succeed simply because it has all been left to chance.
All tax reliefs must be earned. That is because there are always stringent conditions which must be met to qualify for them. This relief is a complex one and there are many hurdles to overcome and traps to avoid falling into. It is equally true that very few businesses which do qualify really capitalise on the tax saving opportunities open to them as a result – with the right planning, for instance, even investments can be sheltered from inheritance tax using this relief. The result of leaving it to chance is often at least tens or hundreds of thousands of pounds or even more in unnecessary tax.
Most businesses start life as qualifying trading businesses or companies for inheritance tax purposes. In the early days of an entrepreneur’s career avoiding Inheritance Tax is unlikely to be of any concern at all. The problems come later as the business grows and acquires value, so regularly reviewing matters is something which should always be on the agenda of established or mature family businesses.
There are many, many threats to consider as well as planning strategies which can very much operate in a traders, and their families, favour once a business is established. Passively doing nothing is certainly not one of them. That is a strategy which can only benefit HM Revenue & Customs over your family.
WHAT TO DO ?
HM Revenue & Customs are certainly going to review your accounts and circumstances as soon as Business Property Relief is claimed by your executors. There are no exceptions. Your executors will need to accurately report on your business to obtain Probate and as part of the overall Inheritance Tax Return and payment of tax. So the pressure is on immediately you depart this world. It is a pressure which comes at the worst of all times for the family.
The obvious step is to undertake exactly the same review of those accounts NOW and while you are in a position to do something about it.
If you are concerned about Inheritance Tax then it should be an essential element of business risk management that your business interests pass tax efficiently to those you wish them to and that any weaknesses to obtaining maximum Business Property Relief are addressed in your lifetime.
Where you are going wrong with inheritance tax planning – https://bit.ly/2oDgG28
