The amount of money a family pays in tax after a business owner dies can vary by tens of thousands of pounds simply because of the way their will is drafted.
Jacqui Lazare (pictured), from leading national law firm Clarke Willmott LLP says there has been a rise in business owners changing the shape of their wills in recent months as it becomes clear the Government may increase its take from Inheritance Tax (IHT) to help pay for the cost of the COVID-19 pandemic.
She said: “There is no doubt that the most important document for any business owner in their succession planning is their will. Business owners need to ensure that at least one of their executors is someone who understands their business.
“For family businesses, where perhaps a husband and wife and one or more children hold shares, clear instructions in a will are vital. Certain types of assets attract generous inheritance tax reliefs and opportunities exist for couples to ensure that the benefit of these reliefs is maximised.”
For business owners where the value of their home and their business tops £2 million it is even more crucial to set out clearly where assets are to go after death as estates over that amount attract different tax rules under the Residence Nil Rate Band, which is now fully in force and can potentially save £140,000 in tax for a couple..
Said Jacqui Lazare: “Many families with a business are now using discretionary trusts to ensure that family members receive their inheritance rather than the taxman. Instead of leaving exempt assets in a will to a spouse outright or to a life interest trust the assets are left to a discretionary trust with chosen beneficiaries.
“Such a gift would be free of IHT due to Business Property Relief. Depending on the amounts involved it can make a difference of many tens of thousands of pounds to the amount paid in tax. It may mean a change to shareholder agreements if more than one member of a family holds shares but it can make a huge difference to how much is passed on to future generations,” she added.
Clarke Willmott has recently launched its #GoodWill campaign which aims to encourage people to take steps to safeguard their family’s future wealth by pledging that they will make a will this year.
The firm has developed a free, online ‘Which Will?’ tool to help people that prompts the user to think about what is important to them when making a will and recommends which will best meets their needs.
Clarke Willmott is a national law firm with offices in Birmingham, Bristol, Cardiff, London, Manchester, Southampton and Taunton.
For further information contact email@example.com or visit www.clarkewillmott.com.