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Where Taxpayers and Advisers Meet

Handing down a family business to children

hambsin
Posts:1
Joined:Wed Jan 18, 2017 12:32 pm
Handing down a family business to children

Postby hambsin » Wed Jan 18, 2017 1:00 pm

Hi All,

My parents run a small retail business as a husband and wife partnership however would like to pass this on to my two siblings and I as they retire.
They own shop properties which are included in the business and would remain used by the business however in case of the sale of properties they would retain the proceeds (we're not planning on selling them).

We had thought that my parents would gift 20% of the partnership to my siblings and I with my parents retaining 20% each. Profits would be split using a different ratio according to involvement in running of the business. We all plan to work full time in the business initially but this may change to some being involved on a part time basis. In the hypothetical eventuality that we sold the business, my parents aren't interested in the capital other than that relating to the properties. The properties are the main value on the balance sheet but there would be some goodwill on sale. We wanted to be able to vary the profit sharing ratio each year but keep the capital ratio static.

An accountant advised that my parents are better leaving the business capital as it is now, draw a line under it and start new current accounts where profits can be split going forward. There would be no need for gift elections as they hadn't given us any capital and then eventually upon death the business would qualify for business property relief from inheritance tax.

Is the accountants advise the most tax efficient way to go about the handover? Would it cause any tax issues for my family?

Thanks in advance for any advice.

LozaACCS
Posts:1504
Joined:Wed Aug 06, 2008 3:55 pm

Re: Handing down a family business to children

Postby LozaACCS » Thu Jan 19, 2017 9:39 pm

This is the wrong time of the year for me (to put it mildly), I would not have time to enter a dialogue , however there are a number of issues here and your post is confusing in some areas , I would with respect to the accountant involved (who will be more familiar with the circumstances) offer the following;
If your parents own the properties in their own right (but allow the partnership to use them)then I cannot see why or how they can be included in the balance sheet of the partnership.
The goodwill in the partnership is clearly an asset of the partnership.
If the parents own the properties then a gift of the partnership to the children may incur a CGT liability based on the value of the goodwill, a hold over election might be desirable.
If the partnership owns the properties (you state that they are in the balance sheet) then an election may be crucial rather than desirable, note also that any change in profit sharing ratios can be a chargeable event for CGT (other than between the parents which will be no gain/no loss)


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