Business Succession Planning & Inheritance Tax Mitigation
Posted on 17th July 2017 at 10:25
Did you know that it is possible to create a guaranteed value and a guaranteed market for a shareholding in a limited company, in a most tax-efficient manner?
The strategy and the potential benefits are outlined below: financial planning that will help ensure the continuing welfare of both a shareholder’s family and of the business, in the event of the death of a shareholder.
1. Each shareholder in the business will take out a life assurance policy for an amount which matches the current value of their individual shareholding. Each life policy is written in a business trust for the benefit of the other shareholders and all shareholders enter into an appropriately drafted cross option agreement.The business can pay the premiums and the latter are treated as P11d benefits for the shareholders.
2. If a shareholder dies during the term of the policy, the surviving shareholders/trustees will claim on the relevant policy and then they will exercise their option, under the cross option agreement, to buy the deceased’s shares.
3. Instead of the deceased shareholder leaving the shares to his/her spouse, the shares were left to a discretionary trust, written into the deceased’s personal will, with the beneficiaries being the surviving spouse and/or children.
4. The trustees of that discretionary will trust receive the proceeds from the sale of the shares. The trustees can then make loans to the surviving spouse from the trust fund, thus, the surviving spouse may benefit from the trust. The surviving spouse and her children may well be the trustees.
5. When the surviving spouse dies, the funds within the will trust will not subsequently be added to the spouse’s estate and therefore will not be assessable for inheritance tax. In addition, any growth in value of the funds within the trust, less any capital distributions or loans made before death, should also be outside of the estate.
For more information, please contact: Nigel Osgood
Tagged as: Business Finance
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