Establishing a trust when selling a business
Thoughts from the Trust team
"No copy received, Claire to draft."
Lisa Wilson
Partner
Key considerations
Summary of circumstances
Summary of circumstances
Our client came to us as she was considering selling her trading business in the next few years and wanted to look at the options available to her, to reduce her tax burden.
The business is a qualifying trading company and as it stands, the shares qualify for Business Relief (BR) which currently results in 100% relief from UK Inheritance tax (IHT).
Establishing a trust when selling a business
Find out how we helped our client to reduce her tax burden when selling her business.
Our client could continue to hold the shares in her personal name until she is ready to sell.
If she was to die whilst still holding the shares, under the current UK tax rules, the shares would be exempt from UK IHT as they qualify for BR.
If she sold the shares in her trading business, the cash proceeds would immediately fall under IHT and may be subject to 40% tax if held within her estate.
If she was to make cash gifts and died before seven years of the date of the gift, any funds above the available Nil Rate Band (‘NRB’), would be subject to IHT.
She may also be subject to Capital Gain tax on the disposal of the shares at a rate of up to 20%.
Without a Trust
Impact with a Trust
Gift the shares into trust prior to any sale. No IHT on the gift as the shares qualify for BR.
The Capital Gain on the transfer of the shares can be deferred which would give an immediate CGT saving.
When the shares are sold, the gain is payable by the Trust but proceeds can be invested within the Trust resulting in future growth being within this structure rather than the clients estate.
Other assets or cash from the estate can also be transferred into Trust to mitigate IHT and direct wealth out of the estate.
Any future growth of the assets or investments is then within the Trust and outside the estate immediately.
What are the options?
Creating a trust to protect wealth
We worked with our clients to assist them in mitigating their IHT exposure whilst protecting their wealth.
Establishing a trust when selling a business
Find out how we helped our client to reduce her tax burden when selling her business.
More client stories
Benefits of using a trust
It removes assets from the transferor’s estate for IHT purposes.
Assets are beneficially owned by the beneficiaries, but legal control is retained by the transferors through the role of trustees.
Trustees are ultimately responsible for distributions and can decide who to pay and how much each year.
The assets are held on trust for the beneficiaries which can provide protection against adverse future events such as bad relationships, divorce and bankruptcy.
