• news-banner

    Expert Insights

Pre-sale trust planning – a timely reminder ahead of the Spring Budget?

Business-owning clients will often view a sale as a good opportunity to benefit their families and pass at least part of their realised wealth down to their children (and / or grandchildren).  When it comes to personal inheritance tax (IHT) and other tax mitigation around the sale of a business, it is important to have initial discussions early on in the process in case there is advantageous tax planning which can be undertaken pre-sale.

Business Relief (BR) and pre-sale planning

There is a particularly valuable opportunity around private trading company shares because trading businesses are usually exempt from IHT by qualifying for 100% BR.  Under current rules, “trading” means the business is wholly or mainly (i.e. over 50%) trading, rather than making and holding investments.

Assuming the shareholder has owned the shares for at least two years (and subject to certain other conditions) then they will qualify for 100% BR and the shareholder can transfer these into a trust for the benefit of their descendants or wider family without triggering an upfront IHT charge.

Conversely, in a post-sale scenario with cash sale proceeds, only a value of up to £325,000 can be transferred into a trust by each shareholder without an immediate 20% IHT charge on the excess.  This is because BR is immediately lost once there is an agreement to sell so it is crucial that any planning is considered well ahead of any exit and carried out pre-exchange on sale of the shares.  

Trusts as vehicles for succession planning

An outright gift of the shares would avoid any potential upfront IHT charge but there are a number of advantages to trusts as vehicles in succession planning:

  1. Flexibility to adapt to unknown / future circumstances (including unborn beneficiaries);
  2. Asset protection against threats to wealth such as divorce, bankruptcy or other financial vulnerability; and
  3. Efficient passing of wealth down to future generations of a family at the right time. The trustees ultimately retain control which can be useful for young or spend-thrift beneficiaries.

Any gift of shares into trust would still be subject to the usual 7 year rule meaning it would only escape IHT consequences completely if the donor survived it by 7 years. 

Furthermore, the shareholder gifting the shares needs to be wholly excluded from any benefit from the trust and there are administration costs for running a trust, which would also be subject to a separate regime of taxation. 

These are all factors which should be weighed up and considered as part of any pre-sale planning.

Post-sale options

If IHT planning considerations are left until post-exchange on the sale, the options are much more limited – for example, the making of outright gifts or establishing family investment companies (FICs). 

Even if a shareholder preferred to create a FIC post-sale, they may still consider including a trust shareholder given trusts offer certain advantages (as summarised above), particularly flexibility around unborn beneficiaries.  Such a trust can still not be funded with as much post-exchange as it could have been pre-exchange, so the same pre-sale considerations apply.

In light of these more limited options post-sale, it is clear that leaving the conversation around personal planning too late can result in a valuable opportunity to bank IHT relief being lost so it is important to take advice early when a sale is being considered, particularly with the Spring Budget around the corner and the changes which this may bring.

Our thinking

  • IBA Annual Conference 2023

    Charlotte Ford

    Events

  • Mental Health Management

    Nick Hurley

    Events

  • Arbitration Act 1996: Law Commission recommends limited changes

    Richard Kiddell

    Insights

  • Charles Russell Speechlys advises Nortal on its acquisition of Questers

    Hamish Perry

    News

  • Charles Russell Speechlys expands presence in Greater China with the arrival of Litigation and Dispute Resolution Partner Stephen Chan

    Stephen Chan

    News

  • Family and Employment law assistance in legal advice deserts

    Sarah Farrelly

    News

  • Property Patter: the latest on the Building Safety Act

    Richard Flenley

    Podcasts

  • James Souter writes for City AM on Meta pulling out of its London office

    James Souter

    In the Press

  • A Labour government: what might be in store for personal taxation?

    Sarah Wray

    Quick Reads

  • Ciara Coyle writes for People Management on ways to ensure ‘invisible’ workers do not go unrecognised

    Ciara Coyle

    In the Press

  • Charles Russell Speechlys advises Puma Private Equity on its £3.5 million investment into TravelLocal

    David Coates

    News

  • Georgina Muskett and Karin Mouhon write for Property Week on the importance of preparation when proposing site redevelopments

    Karin Mouhon

    In the Press

  • China Daily, and other titles, quote Silvia On on trends affecting Chinese HNWIs

    Silvia On

    In the Press

  • The Evening Standard quotes Rose Carey on the increase in visa fees

    Rose Carey

    In the Press

  • New Hong Kong crypto regime: trading platforms falling foul already?

    Patrick Chan

    Insights

  • Spears quotes Piers Master on the potential exodus of UHNW non-doms from the UK ahead of a potential Labour government

    Piers Master

    In the Press

  • Charles Russell Speechlys advises Zenzero’s management team on its majority acquisition by Macquarie Capital

    Mark Howard

    News

  • David Savage writes for Construction News on the upcoming building-control overhaul

    David Savage

    In the Press

  • Updates and points to note in relation to buy-to-let residential properties

    Twiggy Ho

    Insights

  • Felicity Chapman writes for Insider Media on alternatives to court for divorcing business owners

    Felicity Chapman

    In the Press

  • Investment Week quotes Julia Cox on the proposed scrapping of inheritance tax

    Julia Cox

    In the Press

  • 5 top tips to make estate administration easier for your executor

    Jessica Dawkins

    Quick Reads

  • Office to Lab Conversions: A new lease of life (sciences) for some of London’s offices?

    Georgina Muskett

    Quick Reads

  • The Family Fund: Bank of Mum & Dad 2.0

    Vanessa Duff

    Quick Reads

  • Inside Britney and Sam’s $10m prenup

    Shivi Rajput

    Quick Reads

  • The perpetual struggle between the environment, heritage and development: the M&S decision vs 55 Bishopsgate

    Sophie Willis

    Quick Reads

  • Treasury Committee endorses mandatory venture capital diversity policies from 2025

    Lia Renna

    Quick Reads

  • Oops!....I did it again - Britney's third divorce

    Charlotte Posnansky

    Quick Reads

  • NSPCC urges Government to protect children from domestic abuse during holidays

    Shivi Rajput

    Quick Reads

  • A brief look at HMRC v A Taxpayer [2023] UKUT 00182 (TCC)

    Dominic Lawrance

    Quick Reads

  • ATED and the farmhouse

    Sarah Wray

    Quick Reads

  • Recognising financial abuse in a relationship

    Vanessa Duff

    Quick Reads

  • Million Dollar Footballer With No Assets?

    David Carver

    Quick Reads

  • Are Parental Rights Equal for All Families?

    Vanessa Duff

    Quick Reads

  • Atonement and post separation endeavour: wife keeps £1m gift from husband after his affair and will receive a share of his business’ future profits

    Sophia Leeder

    Quick Reads

  • Pensions: change is in the air once again

    Sarah Wray

    Quick Reads

  • Pre-Settled Status to be automatically extended by two years

    Paul McCarthy

    Quick Reads

  • Don’t push it… Quincecare duty clarified

    Caroline Greenwell

    Quick Reads

  • Pandora Papers: HMRC nudge taxpayers to come out of their box

    Hugh Gunson

    Quick Reads

  • Making BitCoin a BitClearer

    Charlotte Posnansky

    Quick Reads

Back to top