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17 November 2020

Succession and Will Planning

Tax Tips – Business Question:

I am in my mid 60’s, married, 5 children, have some investments and one rental property.  Two of my children work in the family business, with my other 3 children choosing different careers.  My wife and I have been considering my retirement from the business and our wills for some time and we feel that now could be the right time to plan for this. Can you please advise how we should approach this?

‘Brexit and Covid-19 have forced many people to reconsider their succession plans.  The real impact of Brexit on businesses operating on the island of Ireland from 1 January 2021 is forcing many businesses to rethink their business structure and operating model,’ says Siobhan McCreesh

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Covid-19, similar to Brexit, has caused havoc for businesses but in a different way.  Businesses have had to quickly, understand, consider and adopt survival techniques in a pandemic.  In some family businesses, we have seen a younger generation take the lead and come up with new opportunities for the business that they work in.

Succession planning and will planning is not an easy subject to consider, and there will always be something else that needs to be done before the subject can be approached.  However, the reality of succession and will planning is, the sooner this is started the better, as it will give you clarity over your financial affairs and peace of mind.  With every type of planning there will always be legal, commercial, and taxation matters that need considered.

When considering retirement, the starting position is to review your disposable income requirements going forward.  It is important to understand how your retirement would be funded as this could have a bearing on both succession and will planning.

Every business should have a clear succession plan and generally consideration should be given to this approximately 5 years prior to retiring in order to develop an exit strategy plan. However, this may not always be possible and may need completed in a shorter time frame.  The first two considerations in any succession plan would generally be, what is the value of my business and who would be willing to acquire it from me?

The value of your business depends on a number of factors and it may be that you may need to implement a strategy to prepare it for sale.  The second point to consider is, would there be a willing buyer, this could be a management team already working in the business, a family member(s) or an external 3rd party?

If there is a willing buyer, consideration needs to be given to how the sale could be structured and the associated tax implications.  If the business is being passed to the next generation, maybe as a gift, this will also give rise to a number of tax issues.  Generally, on the disposal or gift of any business, exposure to inheritance tax, capital gains tax, income tax, VAT  and stamp duty needs to be reviewed.

If the business can’t be sold (for various reasons), one exit route may be a member’s voluntary liquidation.  As with all other exit strategies, the timing of this is important. Again, there are also a number of legal, commercial and taxation matters requiring a review.

Will planning is important for all individuals and this should be implemented at any age.  It is important that you and your wife,  initially, make a list of your assets and their approximate value.  This would allow an assessment of your exposure to inheritance tax (if any).  From this,  the conversation in respect to who you would like to benefit from your estate could start and it may take some time to work through this process.  If you don’t have any wills in place, we would strongly recommend that wills are put in place and these can be changed at any time.

Once a clear succession plan for your exit from the business is established and you and your wife have decided on how you would like your estate distributed, the importance of a  family meeting to discuss both cannot be understated.  This gives clarity to all concerned, underpins your wishes and can avoid future family disputes.

The advice in this column is specific to the facts surrounding the questions posed.  Neither FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.

Contact Siobhan

Siobhan McCreesh / Associate Tax Director

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