For business owners, inheritance tax (IHT) planning is not just about passing on personal wealth, it’s about securing the future of the business you’ve worked so hard to build.
Without the right planning in place, your family and business partners could face unexpected tax burdens, financial instability, or even the forced sale of your company to cover tax liabilities or complete closure.
At Howard Wright Financial Planning, our team of Chartered Financial Planners are already helping business owners across the UK navigate the complexities of IHT, succession planning and business protection. Here’s what you need to know about inheritance tax, directors’ share agreements, cross-option agreements, key person cover, and articles of association and how our team can help ensure your business is fully protected.
Understanding Inheritance Tax for Business Owners
Inheritance Tax (IHT) is a 40% tax on estates valued above the nil-rate band, which currently stands at £325,000 per individual (or up to £1 million for married couples who qualify for the residence nil-rate band).
For business owners, Business Property Relief (BPR) can reduce the taxable value of business assets by up to 100% (reducing to 100% for the first £1,000,000 with 50% thereafter from April 2026) meaning a well-structured plan can significantly reduce or even eliminate IHT on your business. However, this depends on factors such as:
- Whether the business is trading (rather than investment-based).
- Whether shares are passed to a relevant beneficiary.
- How long the shares have been held before passing.
If the correct planning is not in place, your business assets could be subject to substantial tax bills, potentially forcing heirs to sell shares or assets to cover the liability. That’s where a solid business succession plan becomes crucial.
The Role of a Directors’ Share Agreement in IHT Planning
A Directors’ Share Agreement (also known as a shareholders’ agreement) is a legally binding document that outlines how shares in a business are handled in the event of death, retirement, or dispute.
Why is this important for IHT?
- Prevents shares from falling into the wrong hands – Without an agreement, shares may be inherited by family members who have no interest in running the business.
- Ensures smooth succession planning – It can stipulate who has the right to buy shares if a director passes away.
- Preserves Business Property Relief (BPR) – A well-structured agreement can ensure that business relief is maximized to reduce IHT exposure.
By working with our Chartered Financial Planners, we can help review, update, or create a Directors’ Share Agreement that safeguards your business and ensures tax-efficient succession planning.
Cross-Option Agreements: A Vital Tool for Business Succession
A Cross-Option Agreement (also called a double option agreement) is one of the most effective ways to ensure the continuity of a business after the death of a key shareholder.
How does it work?
- Gives surviving business owners the option to buy shares from the deceased’s estate.
- Gives the deceased’s estate the right to sell their shares to surviving owners.
- Ensures business continuity and financial security for all parties.
Without this agreement, a deceased shareholder’s family could:
- Be forced to sell shares on the open market, losing control over the company.
- Face a major IHT liability if shares are not structured correctly.
- Struggle with financial uncertainty if shares are not easily liquidated.
A Cross-Option Agreement, backed by the right funding mechanisms (such as life insurance), ensures that a business can continue operating smoothly while ensuring the deceased’s beneficiaries receive a fair financial settlement.
Key Person Cover: Protecting Your Business from the Unexpected
A business often relies on key individuals, owners, directors, or senior employees who are instrumental in its success. If one of these key people were to pass away unexpectedly, the financial impact could be severe.
What is Key Person Cover?
- A life insurance policy taken out by the business on an essential employee, director, or owner.
- Provides a payout to the business in the event of their death or critical illness.
- Helps cover financial losses, hiring replacements, or repurchasing shares.
Without Key Person Cover, a business could face:
- Loss of leadership or specialist knowledge.
- Reduced investor or client confidence.
- The risk of financial decline or even closure.
At Howard Wright, we help business owners implement the right Key Person Cover strategies, ensuring that your company is financially protected against unforeseen events.
The Importance of Articles of Association in Business Succession
While many business owners focus on wills and shareholder agreements, Articles of Association are often overlooked, but they play a crucial role in succession planning.
What are Articles of Association?
- A legal document that outlines how a company should be run, including share transfers.
- Can include pre-emption rights, preventing shares from being sold outside the company.
- Helps preserve Business Property Relief by ensuring shares remain eligible.
Without properly structured Articles of Association, a business might:
- Lose control of shares to external parties.
- Encounter disputes over ownership and voting rights.
- Face unnecessary tax liabilities due to poor structuring.
We work with business owners to review and amend Articles of Association, ensuring they align with both succession goals and inheritance tax efficiency.
How Our Team Of Chartered Financial Planners Can Help
At Howard Wright, we understand that business succession planning is complex, but it’s essential for securing your legacy. Our team of Chartered Financial Planners work closely with business owners across the UK to create bespoke IHT and succession plans that ensure:
- Your business is protected for the next generation.
- Your family and beneficiaries receive a fair financial outcome.
- Tax liabilities are minimized using Business Property Relief and other strategies.
- Your business can continue operating smoothly, even in unforeseen circumstances.
Our Services for Business Owners Include:
- Inheritance tax and estate planning to reduce IHT liabilities.
- Business succession planning, including shareholders’ agreements and Cross-Option Agreements.
- Implementation of Key Person Cover to protect against financial disruption.
- Review of Articles of Association to align with tax efficiency and business continuity goals.
- Ongoing financial planning to adapt to changes in legislation, tax rules, and business structures.
Secure Your Business’s Future Today
Inheritance tax and business succession planning are too important to leave to chance. Without a well-structured plan, your business and family could face unnecessary tax bills, ownership disputes, and financial instability.
At Howard Wright Financial Planning, we specialize in helping business owners like you protect your wealth, your company, and your legacy.
Contact our team of Chartered Financial Planners today to arrange a free initial consultation and secure the future of your business and family. Call us on 0345 688 4939 or complete the 20 second enquiry form below.
Act now to ensure your business and loved ones are fully protected for the future!
Disclaimer: The information provided in this blog is for general informational purposes only and should not be considered financial, investment, tax, or legal advice. While we strive to ensure the accuracy and relevance of the content, financial markets and regulations change frequently, and information may become outdated.
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