Inheriting a business according to the law: What you need to know
When someone passes away, it’s tough to get to grips with the emotional and financial implications.
You may even need to sort through belongings, accounts, or property, which can prolong the grieving process. But what if you inherit a business from someone? Unless you’ve had a long time to prepare, the responsibility could quickly become overwhelming.
A business is considered part of an estate for inheritance tax. When faced with the ins and outs of this process, there are a few crucial things to bear in mind.
Business relief is available to help cope with the impact of inheritance tax, which applies to certain kinds of assets, including premises, unlisted shares, and equipment.
When bequeathed a share or entirety of a business, whether to keep it in the family or protect what’s been built, estate planning in advance is crucial to reduce the overall impact of potential IHT. By factoring in business relief under the guidance of financial advisors, the beneficiaries could benefit from greatly reduced tax obligations.
Order for probate
To begin giving out assets according to wishes expressed in a person’s Will, executors need the legal right and documentation to start that process. This authorisation is called a grant of probate. There are exceptions to the need for probate, but it’s commonly required.
Although the application process itself may not take long, you may be waiting for several months for it to be processed. However, IHT is usually payable before probate can go through. As such, for larger estates with a lot of IHT to pay, this may hinder the release of assets to beneficiaries.
For such situations, executors’ loans bridge this gap, allowing the application to start sooner by having the inheritance tax paid directly to HMRC. Once the estate’s assets have been released, the funding is repaid from these coffers.
After settling the tax responsibilities of the estate, you’ll be left with the decision of whether to run the business, sell it, or share it.
The answer to this is incredibly personal: each case is different.
If you’ve inherited a family business and have been preparing to take over, it could mean more to you to keep the business going. To be sure you’re fully aware of what it entails, you should look into the financial documents and succession plans. The last thing you need is a nasty surprise further down the line.
If it’s a skilled trade and you aren’t a specialist in the sector, bringing on partners to run it could be the answer. As the identity of the organisation will be altered in this situation, you should keep everyone up to date with changes to keep a smooth transition.
Alternatively, it could suit you best to sell it. Running a business is an immense undertaking for which there may not be space in your life.