The following Trusts and Inheritance Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
This guidance note discusses the Will drafting issues to consider where the testator owns business assets. For a more general introduction into Will drafting see the Drafting a Will guidance note.
Apart from the family home, a testator's business will be their most valuable asset either in terms of its actual cash value or its importance as an income-earning asset. From those perspectives, careful thought is required to preserve its potential after death. How this is accomplished depends heavily on the format of the business, ie whether it is incorporated or unincorporated.
Essentially, where the business is incorporated there will generally be a management structure in place that can continue to run it for the benefit of the estate. With an unincorporated business the problem is one of survival - will the business be able to be run after the testator's death? If it is a partnership, this is possible but if the goodwill and expertise is tied up with the testator alone, the difficulties are substantial. The same problems will manifest themselves even if the business is incorporated if it is actually a 'one man band', no matter how successful it may be.
A matter of some importance in deciding what to do with the business is the question of inheritance tax. The rate at which the business will qualify for relief may be a deciding factor on its destination.
Business property can carry 100% business property relief (BPR) from IHT. However, not all businesses will qualify for this. The importance of determining whether the testator's business qualifies, and to what extent, is simply that there may be some advantage in keeping the asset away from a surviving spouse.
BPR is a relief that reduces the value of property on which IHT is charged. The reduction will generally be available where a transfer of business property is made. The reduction will be at a rate of 50% or 100%, depending upon the type of business
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