The twenty-first century has seen the popularity of the family business diminish; losing its popularity to corporate conglomerates residing in modern buildings with shiny interactive desks. To a large extent, the Victorian values of the family business being passed down the generations is no longer the popular option.
In fact, according to a 2018 research into small and medium sized enterprises (SMEs), carried out by Legal & General, only 42% of British family-owned businesses have a plan for longevity.
Only around 30% are confident that the business will outlive the current generation and only 10% believe that it will be run by the third generation within the family.
48% of family-run businesses viewed the death or critical illness of the business owner as the main risk to their continued operations, with 57% anticipating that the business will close within a year of the death.
When so many family-run businesses fail to consider the future of the business without the current owner, they may also fail to consider the inheritance tax (IHT) implications involved.
17% of the people that would inherit one of the 800 businesses questioned would like to sell the shares they inherit but were unsure as to the IHT considerations and implications. All were unaware that a business estate could qualify for 100% business property relief from inheritance tax; highlighting a clear need to better educate business owners of how they can pass their business on or plan for what happens to their business when they die.
Richard Kateley, head of intermediary development at Legal & General, said: “With nearly half of these businesses rating the death of an owner as the highest risk to their operations, the UK’s family-run firms have clearly recognised the impact a critical event can have on their business, yet so many lack the necessary plans to help them manage the loss of a key person.”
“The effects of the loss or critical illness of an owner or key person, who may be a mum, auntie, dad or uncle within a family-run business, is even greater than for a non-family business, as the emotional impact will have an even bigger effect on the running of the business.
“If we want to see Britain’s family businesses remain a staple part of the economy for generations to come, it is vital that the owners have clear plans in place regarding their succession, particularly when it comes to managing the impact of their death or critical illness.”
“I would therefore encourage them to speak with a financial adviser, so that they can identify how each business protection policy can help them to manage the risks posed by the loss of a key person.”
Whilst many business owners have a dream of building a successful business that they can pass down to their children, this is no longer the modern way. Instead, savvy business owners should look at planning for a business departure that will benefit the beneficiaries after they die.
Have you dealt with a lot of estates containing a business? What should be done to ensure more people consider their business when making a Will?
