Restful Wills help to ensure that your wishes about your business are reflected in your Will and are legally enforceable.
Why You Need a Business Will
Business Wills are needed for all businesses.
Your business is a reflection of your achievements and hard work. It deserves to be a continuing business for someone that you love or is close to you should you want that.
The government should not be making more money in inheritance tax from you than it needs to.
Failure to deal properly with business assets can result in a failure to get the full benefit of potential tax relief.
Business Property Relief (BPR)
Business Property Relief (BPR) means business assets are treated differently to other assets disposed of in a Will. Your inheritance allowed threshold before you have to pay tax is not affected and is separate to business relief.
Tax relief can be as much as 100%.
Business Property Relief (BPR) allows for the Nil Rate Band (NRB is the threshold for inheritance tax which stands at £325,000) not to be effected and tax relief allowed is not limited by value.
Only assets passed as part of a business or are a business in themselves will attract Business Relief. Transfers during the lifetime are not included.
Business property must be owned by the testator for 2 years prior to death. Inherited business property can include the period of the person it was inherited from.
Part use of an asset may allow for part relief to be claimed (room in a house used for a business.
If 100% relief exists there should be consideration of giving a business or business asset to a non-exempt beneficiary (son, daughter) so that the business relief is not wasted. This is only if the exempt beneficiary (spouse, civil partner or charity) will not hold the property in a way so as to maintain business relief.
Partnerships agreements must be consulted before embarking on attempts to dispose of any business interest in a company by Will. Shares in a partnership cannot be transferred unless there is express provision in the agreement to do so. Default provisions usually indicate a partnership be dissolved on the death of a partner.
Limited liability partnerships (LLP)
Terms of agreements are needed to be considered. It is likely that the LLP agreements allow for surviving partners to buy shares and the method for doing so. It may be possible to bequeath payment for shares in a Will if there is no price in the LLP agreement.
Consideration to be given as to whether trustees have powers to run a business. The ability for trustees to be indemnified for loss or receive remuneration for their role in running the business should be considered.
Business executors can be different to executors of a normal estate.
Other Business Will Considerations
Not all beneficiaries have the skills needed to run a business and leaving the business to a group of people may not be wise if it is likely to create financial disputes or issues about money being taken by some people when effort in respect of the business is not being made by them.
This allows for you to control who runs your business after you and who takes control of business assets. It alleviates the problem of disputes about business assets especially by family members. Business Wills allow for a business to carry on after the Testator’s death (person making the Will) by a person who has the capability to do so and is deserving of that gift. Not deciding who gets your business assets can often mean that the business does not continue as beneficiaries may want to sell the assets.
Business Property Relief (BPR):
100% relief is available for:
1) Business or business interest (sole traders or shares in a partnership)
2) Unquoted securities in a company giving control to the Transferor ( person receiving them under a will)
3) Unquoted shares in a company
50% relief is available for:
1) Quoted shares or securities giving control of the company to the Transferor
2) Land, buildings or machinery used wholly or mainly for the purposes of a business carried on by a company of which the transferor then had control or by a partnership of which he was a partner.
3) Land, buildings or machinery used wholly or mainly for the purposes of a business carried on by the transferor and was settled property in which he was beneficially entitled to an interest in possession.
Agricultural tax relief can be granted as 100% relief. Agricultural value and not market value of the property meaning developmental value is not considered. Some assets related to agriculture can attract business relief such as farming machinery, crops, livestock which do not qualify for agricultural relief but can qualify business relief as they are used as part of the farming business. Business relief can apply to farming land outside the UK as that land falls outside the jurisdiction of agricultural relief.
It must be decided what assets are to be transferred with the business by a Will and what assets will be gifted as part of the testator’s estate.
Company documents such as the memorandum and articles of association may restrict the transfer of a business interest. It could be that shareholders have first rights of share refusal at fixed or market value. It could be that an effective gift of shares of the company cannot be made. Company documents should be checked to before attempts are made to dispose of any business interest in a company by Will.