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You’ve been responsible for your business and your family all your working life.  Make sure they don’t lose out in shock Inheritance Tax bills.

Accountancy firm, Goodman Jones, looks at the ins and outs of inheritance tax.

Many independent retailers have built up their businesses with their families in mind.  Some simply want to provide a good start for them from the profits of their hard work.  Some hope to hand the business to the next generation in due course.

And yet, despite all the hard graft and commercial decisions, many owners risk depleting the assets they want to leave to their loved ones simply through lack of estate planning.

Inheritance Tax (IHT) is no longer only a problem for the very wealthy. With the current levels of property prices and the ‘nil rate band’ frozen at £325,000 until the end of 2020/2021 there are many people who potentially fall into the IHT net.

Do you have Buy to Let property?  Beware the tax traps

All those with loans on BTL property will be aware that the tax relief on this expense is being phased out over the next 4 years.

From tax year 2020/21 tax relief on loan interest for private landlords will be restricted to basic rate only.  So for those earning enough from their retail businesses to fall into the higher income tax bands, this change could erode the benefits of renting all together.

This has driven many BTL landlords to look at incorporating their property portfolio in order to avoid the interest restriction and qualify for the much lower rates of Corporation Tax rather than the Income Tax rate.

Whilst this may seem to be a commercially astute decision, what is often overlooked is that this can give rise to a 20% Inheritance Tax liability.

Incorporating a BTL business involves a numbers of different taxes and brings with it additional compliance requirements.  Make sure you get expert advice.

Don’t miss out on the reliefs that are available

There are over 100 tax reliefs available in this country.  Estate planning can ensure that you take advantage of those that can minimise the Inheritance Tax your family will have to pay.

We recommend, among other things, that clients consider taking advantage of the annual exemptions for lifetime transfers, the exemptions for regular gifts in consideration of marriage, and the exemption regime for gifts made out of income.

Don’t assume you’ll benefit from BPR

As a retailer, you will also need to ensure the trading companies are structured in such a way to ensure that your estate will be entitled to 100% Business Property Relief.   However, in our experience many savvy business owners keep cash in the business unaware of the fact that it won’t qualify for BPR.

Make sure your loved ones don’t lose out 

Without adequate thought, your estate could find itself paying tax unnecessarily.

Planning for the future is something we are all guilty of putting off, particularly when you’re caught up in the day to day work of running your own retail business.

You do need to ensure you have drawn up a will that reflects your wishes, but is also structured so as to take into consideration the impact of IHT.

Ignoring your estate planning can have devastating consequences for those you love the most.

Goodman Jones are tax advisers who specialise in family businesses.  If you would like to discuss your estate planning requirements please call Janet Pilborough-Skinner or Aidan Roberson on 020 7388 2444 or email [email protected]

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