You’ve built your business from the ground up and decided it’s time to start planning your departure, but how can you guarantee that you pass it on to the right person?
Ensuring your successor has the right level of experience, knowledge and expertise can be a real challenge if you haven’t started planning your exit strategy well in advance.
Given the competition to secure external business leaders, planning from within can provide a better chance of paying off in the long run.
Effective succession planning can reduce your capital gains tax (CGT) liability when you sell your business or dispose of any assets.
Pick your departure date
You may have a certain date or desired retirement income in mind, or a change in health may force your hand.
Whatever your circumstances, the earlier you start thinking about when you want to walk away from your business the smoother the process is likely to be.
Failing to plan in advance runs the risk of disruption, disputes and potentially missing out on the retirement you envisaged.
Keeping it in the family
Succession planning can begin from the moment your first child is born.
For example, let’s say you take on your two children after they’ve left school to help with your stair lift installation business.
They learn the tricks of the trade over the course of 20 years and are natural successors when the time comes for you to step down.
However, keeping the business in the family can be far from straightforward because of the personal relationships and potential emotion involved.
In other cases, succession planning can start as soon as you take on a new employee.
Promoting long-serving executives to senior positions allows them to gain experience running the business while giving you an idea of what life will be like in your business after you leave.
Assuming a worker displays loyalty, ambition and enterprise over their time with you, there’s no reason they can’t progress from within the business to take your seat in time.
To sell or merge?
If there’s no obvious successor to take on your family business, you could consider either selling it or merging with another company.
Whatever conclusion you come to and however you come to it, you should take the appropriate time to evaluate your options – and that’s something we can help with.
If you have at least a 5% stake in your business, you may be able to claim entrepreneurs’ relief which charges a reduced CGT rate of 10% on disposals up to the lifetime limit of £10 million.
Gift holdover relief
Alternatively, you could be eligible for gift holdover relief if you’re passing your business assets on for less than they are worth.
Instead of paying CGT when you pass on the assets, your successor agrees to pay CGT on any gain – if any tax is due – when they sell or dispose of them.
However, CGT isn’t usually payable if your successor is your spouse, civil partner or a charity.
If you want to pass on your business in a will, it may qualify for up to 100% relief from inheritance tax (IHT) under business relief.
The same exemption applies if you have an interest in a business or shares in an unlisted company.
To qualify, your business must be an unlisted company and must have been trading for at least 2 years.
This is similar to business relief and covers farmland or farming businesses, but it has to be a trading farm to qualify.
Here at Wells Advisory we can help with succession planning! Call us now on 01892 507288