PRESERVING YOUR BUSINESS LEGACY: THE IMPORTANCE OF AN EFFECTIVE INHERITANCE TAX STRATEGY

Paul asks Paul

Why have one Paul when you can have two! When it comes to expert advice, we know that two Pauls are better than one and that’s why our managing partner Paul Crichton caught up with Paul Lothian, director at Verus Wealth, to find out how effective financial planning can ensure you’re making the most from your money.

Here’s what they had to say:

Paul Crichton (PC): Why is it important for business owners to have an effective Inheritance Tax (IHT) strategy?

Paul Lothian (PL): An effective IHT strategy can help minimise the amount of tax that a business owner’s Estate will pay upon their death. By reducing the tax burden, more wealth can be preserved for heirs and beneficiaries. This is particularly important for business owners, as it can help ensure that their business can continue operating after they pass away and that the value of the business is not significantly diminished by taxes. This can help to protect the livelihoods of employees and the future success of the business.

PC: Can you give an example of how an IHT strategy can help a business owner?

PL: Sure, let’s say a business owner sells their successful company for £10 million. Without an IHT strategy in place, their estate may have to pay up to 40% in taxes upon their death. This means their heirs would only receive £6 million, while the other £4 million goes to the government. However, with a well-planned IHT strategy, the tax burden can be significantly reduced or even eliminated, which would mean that the heirs would receive more of the wealth.

PC: What are some common IHT strategies that business owners can use?

PL: There are several IHT strategies that business owners can use, depending on their circumstances. One common strategy is to make gifts during their lifetime. This can help reduce the value of their estate, and therefore, the amount of tax that will need to be paid upon their death. Another strategy is to put assets into a trust, which can also help to reduce the value of the estate and the amount of tax that will need to be paid.  Holding assets that are exempt from IHT (such as AIM-listed shares) can also reduce the tax liability.

PC: What are some potential issues that business owners should consider when creating an IHT strategy?

PL: One potential issue is that creating an IHT strategy can be complex, especially for business owners who have a variety of assets and financial arrangements. It’s important to work with a financial planner and accountant who has experience in this area to ensure that the strategy is effective and compliant with relevant regulations. Another potential issue is that the strategy may need to be updated over time as circumstances change, such as changes in tax laws or changes in the business itself.  That’s why MMG and Verus is the perfect combination!

PC: I agree!   So, what are the benefits of having an effective IHT strategy for family members and other stakeholders?

PL: One of the main benefits of an effective IHT strategy is that it can help to prevent disputes among family members or other stakeholders. By having a clear plan in place, everyone knows what to expect and there’s less likelihood of disagreements arising. Additionally, an effective IHT strategy can help to preserve the wealth of the business owner for future generations, which can have a positive impact on the wider community. If it’s the owner’s wish, such strategies can also help to ensure that the business continues to operate successfully, providing jobs and economic benefits for employees and the local area.

PC: It’s clear you’ve a lot of experience with IHT, and this is a very helpful starting point for our clients at MMG, thanks Paul!