A common goal of the head of a family-owned firm is to pass the business down to their siblings or a close relative. Just under half want to pass the business directly to one or more of their children, according to research by investment firm, Close Brothers Asset Management. Almost two thirds of owners want to keep the business in the family in some respect.
The piece that is missing to this worthy goal is how the succession will actually be carried out. Tax planning is a vital and complex area when it comes to handing a business down to family members, yet as few as 8 percent of small business owners have even considered the tax implications of such a move.
There is a difference between the level of planning for small businesses of different sizes. Whilst micro-businesses are mostly unaware of the tax consequences or considered proper planning, half of owners of businesses with annual turnovers between three quarters of a million and a million pounds have been attending to such matters. With businesses sporting a turnover of £5 million or more, over 80 percent have a much clearer understanding of the pertinent facts involved.
The tax considerations include capital gains tax, inheritance tax, as well as capital gains tax hold-over and entrepreneur’s relief. As small businesses comprise over half of the GDP for the UK, it is important that small business owners plan appropriately for succession. Not only does this ensure a successful succession, but it also ensures that the entrepreneurial spirit is not lost.