As a business owner, your will must include your business and personal assets. There are also separate inheritance tax rules for business assets, so getting professional advice can help you understand them and plan accordingly. We gave a presentation on business property relief at a networking event, which led to a conversation with husband and wife business owners who realised they needed to review their wills. Here’s what we did.

Reviewing their current wills

When I first spoke with this husband and wife team, they told me they’d initially made their wills fifteen to twenty years ago, when their lives were very different. At the time, they had two young children and didn’t own a business. Their original wills included guardians for their children. They are now adults, so that was no longer needed. They’d also taken over a family business and started running it after they made the will. They owned the building they ran the business from, their family home, and a rental property.

There are specific inheritance tax rules for business property, and it’s a good idea to plan for these in your will. Their existing wills didn’t include any provision for their business assets, so we decided to update both wills to include them.

How does business property relief work?

Business property relief reduces the amount of inheritance tax payable on business assets and can reduce the amount of inheritance tax your estate must pay. This couple owned the company and the building, which are included in their estate for inheritance tax purposes. You must have owned the assets for at least two years for your estate to claim this relief.

Depending on the asset involved, you can get either 50% or 100% business relief. This type of relief can’t be inherited if you are a married couple, so careful tax planning is needed if you don’t want to waste allowances. Business relief can apply to assets such as buildings, equipment, and shares in the business itself. The estate can only claim within two years of the owner’s death by the executors completing the relevant inheritance tax forms.

Writing new wills

We talked about the business property relief rules and explained that if one of them died, the two-year clock would start ticking again.   However, this doesn’t apply if the business assets go into a trust, which you can create when you write a will. This approach also means that if one spouse had died and the other remarried in the future, the new spouse couldn’t end up inheriting the whole lot.

We included trusts in the will to protect the business and business property relief in the new will. We also included planning to protect their assets from care home fees. We also removed the guardianship information for their children as this was no longer needed.

A new plan

Making a will involves many conversations about your assets and future plans, which can help you reflect on what provisions you want to include. During our discussion, we talked about the business and what would happen when they were ready to step back or were no longer around.

They told me they worked hard and typically worked six days a week, if not more. They asked themselves what they were doing it for. They’d paid off their mortgage and had invested in their pensions and other assets. Also, their children weren’t interested in taking over and running the business themselves. Our conversation helped them reassess what they were doing, and they decided to close the business and retire.

If you need advice on including your business in your will or want to create a Lasting Power of Attorney, we can help. Get in touch using the form below or call us on 0116 380 0752.