Tax advice for you and your family
At some point in the life span of a family business, a transfer of ownership is going to take place. As the owner of the firm gets too old to run the company or dies, then the ownership will need to be transferred to another member of family.
If you ignore the matter of whether or not the next generation in the family is willing to take on the firm, then there are some very serious tax issues that must be dealt with. For instance, handing the business on as a gift or selling the business for cash are both two issues that are going to bring about serious tax implications. You’re going to need some serious work on the matter. Gifting the business will create a potential for capital gains tax charge.
You can now, however, go about holding over the potential gain. As long as some criteria are met, however. Remember that when gifting a business, you will not have to pay inheritance tax either, as long as the owner has not passed away. So it’s always a good idea to pass on a firm when you are no longer active in it.
The alternative to gifting the business, however, is selling it onto your children. If you sell it and meet the right criteria, then you will benefit from entrepreneur’s relief which shields any gains up to £10m. Tax will be paid at just 10 per cent, too. There is an issue here, however, of your children having to raise their own money to pay for the purchase. If they cannot do this, then the better option is to sell your children the shares, and your children using company money to fund the purchase (if they hold shares in the firm in the first place).