25 Mar
25Mar

Fern Wills & LPAs can employ strategies to safeguard a business's longevity and ensure the owner's intentions are honoured in unforeseen circumstances. Effective business succession planning is crucial to this management.

In considering business succession planning, it is vital to take into account the following:

A Business Will: It is a widely held belief that you should have a separate Will for your assets and another Will for your business assets. However, this is a misconception. Your Will applies to all your property, including your business and assets. 

A Business or Commercial LPA (BLPA): A BLPA gives restricted authority for attorneys to make decisions about your commercial activity. It is a separate document from any other LPA. It is a Property and Financial Affairs LPA tailored according to the business and considers its articles of association and shareholder or partnership agreements. 

You can either have a BLPA that clarifies to your attorneys where the authority starts and ends, or you could have a standard P&F LPA and say nothing about the business. Providing the LPA doesn’t contain any instructions that restrict the attorney’s power to only personal finances; they will be able to deal with the donor’s personal and business affairs.


A family member or friend may not have the expertise to make business decisions, so you can either appoint a professional (which will have an associated fee) or even your business partner if you feel this is the right decision. It needs someone you trust, understands your business and shares similar business goals.  Suppose you permanently or temporarily lose capacity. In that case, the bank will likely freeze the business accounts. Someone on your behalf would have to apply to the Court of Protection and apply for a Deputyship Order. This can take up to 6 months and is expensive. No one can make crucial business decisions during this time. 

  1. Sole Trader:  As the owner and controller of the business. If you are unable to make a decision due to illness or injury, no one will be able to continue to make critical business decisions on your behalf unless you have an LPA in place.
  2.  Partnership: A partnership agreement may exist, determining what happens if you can no longer make decisions. Check for this before an LPA is drawn up to prevent conflict between the two documents.
  3. Ltd Company: ‘Articles of association’ are written rules about running the company that are agreed upon by the shareholders, directors, and the company secretary. Your articles of association could contain provisions regarding what could happen if you or another co-director becomes incapacitated. Check this before making an LPA to ensure both documents do not conflict.

Cross-option Agreements: An agreement between shareholders that allows the surviving shareholders to purchase the deceased’s shares by option. A business will not qualify for BPR if, at the time of the transfer, it is subject to a binding contract for sale. Suppose the personal representatives are not obliged to sell the interest to the surviving shareholders. BPR won’t be lost in that case, so it is perfectly fine for business owners to enter into ‘cross-option agreements’ with each other. 

Business Property Relief (BPR):  A person may incur IHT charges if their estate is valued at over £325,000. The value of your business may be included within the value of your estate. You may be able to mitigate IHT through BPR of up to 100% on some estate’s business assets using IHT forms if they meet certain qualifying conditions. 

BPR Trust: This discretionary trust contains assets eligible for BPR at either 100% or 50% relief. Fern Wills & Trusts can establish such a trust; however, due to the complexity and potential changes in tax regulations, it is advisable to cross-consult with your IFA or tax specialist.

Transferring a business to a spouse is exempt from IHT. If the business is eligible for BPR, it could also be exempt from IHT upon the second death, provided it qualifies for 100% relief. However, BPR might not be applicable on the second death if the business is sold or run in a manner that no longer qualifies.

A discretionary trust is often used to mitigate a situation where a surviving spouse sells the business. The trust is its own legal entity; rather than the spouse, it owns the business or its sale proceeds.


A Statement Of Wishes usually states that the spouse is to be treated as the main beneficiary of the trust whilst they are still alive. Upon their death, it could direct that the trust be wound up and assets distributed to the beneficiaries, or it could continue to run.

While BPR remains available, the business assets can stay in the trust and avoid charges where 100% relief is available. If the assets only qualify for 50% relief, then charges may apply:

  1. Entry Charges: 20% upfront Chargeable Lifetime Transfer (CLT) over the NRB.
  2. Periodic Charges: On the tenth anniversary, 6% on assets over NRB
  3. Exit Charges: A 6% pro-rata charge since the last periodic charge.

Giving BPR assets to a non-exempt discretionary trust means HMRC must decide if they qualify for relief. Giving them to an IHT-exempt beneficiary, like a spouse, means no decision is necessary as the spousal exemption applies.

Knowing whether the business qualifies or not can affect the planning that the spouse wishes to make in the future; for example, if the business did not qualify for the relief, they may want to undertake more lifetime planning than they would if the business did qualify. 

The usual benefits of using a discretionary trust will also apply, such as the flexibility to benefit all the potential beneficiaries if the need arises and the protection from the beneficiaries remarrying and going bankrupt. 

Article written with thanks to Manisha Chauhan of the SWW Technical Advice Team

Comments
* The email will not be published on the website.