Business Financial Planning
If you are a business owner or are self-employed, you may well have complex finances. When focussing on building and running your business, you may find it difficult to give your finances the attention they need. We offer financial planning for business owners and the self-employed to help with this burden.
At Trevor Downing (IFA), our experts can help you make the most of your finances and ensure your business is in the strongest position possible. We will work with you to plan and structure your finances in the most tax-efficient way and implement measures that offer long-term financial security to your business and family.
Protecting your Business and Personal Wealth
Many people don’t have adequate cover in place for the many business risks that exist. For instance, if one of your key directors were to fall ill or die suddenly, what would happen to your business? In today’s world, we’ll never know what is around the corner, but we can take steps to ensure the financial position is as stable as it can be, should the worse happen.
Protecting against these different scenarios can ensure the successful running of your company without any unnecessary risk to your business, personal or family wealth.
For example, we can help you with Shareholder Protection, Relevant Life Insurance, Key Person Protection and Loan Protection. These types of policies can ensure that, in the event of death or serious illness of a key member, the business can survive, and the value or ownership of the business can end up with the right people at the right time.
See below for further information on business protection.
Your Pension
You may be relying on the sale of your business to fund your retirement but this cannot always be relied on. We passionately believe that you should never place all your eggs in one basket. We can help you decide how much you can afford to pay into your pension and explain how to make tax-efficient pension contributions through your company.
We can also help you take advantage of Government allowances and tax relief for pension contributions. Through careful planning, we can ensure you are making the most of your annual and lifetime allowances, where possible.
We can even help you make the most of your company pension scheme – including purchasing commercial property within your pension scheme to save tax, and taking loans from your company’s pension assets to fund expansion.
Just as importantly, we can help you plan for your future and review how much income you are likely to need in retirement and whether any shortfalls exist.
Corporate and Personal Investments
We have access to the whole marketplace including the best fund managers from across the world.
Our experts can help you make the most of your money. Whether you are looking for growth or to generate income, either now or in the future, we have solutions to meet your needs. We can help to diversify risk by investing in areas away from your business, and also ensure that you are investing in the most tax-efficient way.
Estate planning and Inheritance Tax
Business assets do not usually form part of an estate for Inheritance Tax purposes but if you sell your business and these assets become cash, they are likely to form part of your estate and, as such, become subject to Inheritance Tax. We can help you put in place a plan to pass on your wealth in the most tax-efficient way. If you’d like to learn more, click here to view our Inheritance Tax service.
Shareholder Protection
Co-shareholder protection is insurance specifically for directors, partners or shareholders. It aims to protect your business, shareholders and your family in the event of circumstances prohibiting you from working, such as death and illness. It is different to key person insurance which is for someone key to the success of a business but not a director, partner or shareholder.
Shareholder Protection Questions
Why is it important?
By taking out shareholder insurance, you will be protecting your business, fellow shareholders and your family in a number of ways:
- A lump sum payment would provide sufficient funds to buy the relevant shares from your family
- The sale of the shares will provide your family with liquidity and possibly a way of paying any inheritance tax charge
- If the policy and shareholders agreement has been set up correctly, the lump sum should fall outside of your estate for inheritance tax purposes
- You can specify the allocation of shares in the shareholder’s agreement which can help protect minority shareholders
- Correctly attributing the costs and benefits under a shareholder protection arrangement will ensure that the policy premiums and benefits are not subject to inheritance tax
What Happens when a Business Partner Dies?
When a business partner or shareholder dies their shares pass to the beneficiaries of their estate. More often than not this will be one or more family members who may have little or no interest in the future of the business or have an immediate need for cash and wish to sell the shares.
For the surviving shareholders, this could mean having to work with new business partners who do not have the same experience or vision for the future direction of the business, whether this is a family member of the deceased or potentially a stranger who has purchased the shareholding from the family.
It is prudent to discuss these matters with your family and business partners (co-shareholders) as early as possible and establish a plan for the future so that all parties can agree on the most desirable outcome and put suitable agreements in place.
What is an option agreement?
An option agreement is a formal arrangement where at least one party has the option, but not right, to take a certain action. For business protection planning purposes, this refers to the option to buy or sell shares or an interest in a business. The main types are single option and cross option.
Single option agreement
Single option agreements are usually set up for critical illness purposes and are usually for the benefit of the shareholder who is critically ill. It provides the shareholder with the option to sell their shares to the remaining directors, partners or shareholders without being forced into selling the shareholdings.
This is an attractive clause to include in the agreement because there is always a possibility that you could make a full recovery and want to return to the business once you return to good health.
Cross option agreement
Also known as a buy and sell agreement or double option agreement, the purpose of the cross option agreement is to give the surviving shareholders the option (but not an obligation) to purchase your shares before they are transferred to a third party. Each shareholding is subject to a “call” option and a “put” option.
- A “call” option gives existing shareholders the right to purchase your shares from your personal representatives (the person/s administering your estate).
- A “put” option gives your personal representatives the right to sell your shares to the remaining shareholders.
The wording of a cross option agreement and/or single option agreement is extremely important because you must ensure that it provides each party with a right and not an obligation, otherwise the agreement will be considered a binding contract for sale.
If this happens, the transfer of your shares in the business will be considered a transfer of cash for inheritance tax purposes which means that any business relief (BR) will be lost and the value of your shares will become part of your taxable estate.
It is really important to make sure that your company’s Articles of Association allow you to include a shareholder agreement in the form of a cross option and/or single option agreement and that the shareholders have the power to establish any necessary trusts where applicable. At Trevor Downing (IFA), we can help you create these shareholder agreements for your business. Get in touch today and speak to one of our business financial planning specialists.
Funding a share purchase
In most cases, the surviving shareholders will not have access to sufficient cash to acquire your shares from your personal representatives. In this case, the co-shareholder policy can pay a lump sum to a beneficiary or beneficiaries to buy the equity (shares) from your personal representatives.
Setting up the policy
There are a number of ways to set up the policy:
- A life of another policy which gives each owner in the business their own policy. The sum assured is determined by the value of your business partner’s equity share. This is typically suitable where there are two business partners.
- Where there are more than two shareholders in a business it is common practice for each shareholder to have their own policy which is written under a business trust. The result is that the death benefit payment is shared among the surviving shareholders equally should one pass away.
- Shareholder protection insurance provides a form of succession planning for your business. This type of planning is vital to ensure a successful transition from one director, partner or shareholder to other equity partners within the business should one fall critically ill or pass away unexpectedly.