Succession with certainty
As retirement and the golf course or fishing rod beckon, the need to hand the business intact onto the next generation comes to the fore.
Often, the planning for passing the business on has taken place over many years. The judgement as to what to pass on and how and when, and what to hold on to, create difficult problems for most of us to grapple with. Invariably, there will be a transfer of an interest in the business or assets used in the business or shares in the business. In amongst all the points to be got right is to make sure that the plan does not expose the family to an immediate tax bill or the risk of an unplanned tax bill.
In a perfect world tax law would be clear (actually in a perfect world there would be no taxes – or lawyers – but that’s another story). In reality, it is intricate and complex and contains many grey areas of uncertainty and traps for the unwary. Skilled professional advice can do a lot to minimise the risk. Sometimes on a major transaction, the tax adviser will get advice from a specialist tax barrister. This provides reassurance but at considerable cost.
For some years, HMRC have provided an alternative by offering a pre-transaction clearance service for business owners. The specific question the Revenue will answer is whether assets involved in a proposed transaction will qualify for business property relief (BPR) for inheritance tax. This is usually a crucial question for many business succession plans. It is usually vital to know that assets will qualify for BPR to avoid an immediate charge to capital gains tax and to ensure that a lifetime gift is exempt from inheritance tax.
It is necessary to explain the background to HMRC and give full details of the way the proposed transaction will work. Before the Revenue will give an answer, you have to show them that there is material uncertainty over the application of the law and that the issue is commercially significant to the business itself. They also will need evidence that the transaction is genuinely contemplated. However, once HMRC are satisfied on these points, they will give a view as to whether BPR applies and they aim to send their view within twenty-eight days.
Like the ancient Greeks consulting the oracle, you have to ask the right question and listen carefully to the answer so as not to misunderstand it. However, where a major succession planning gift is crucial to the future of a business, it does offer a way for business owners to carry out a transaction with a much greater degree of certainty as to the tax consequences, and HMRC do not charge for this service.
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