Looking beyond the Budget headlines on family business succession planning

Recent media reports suggest the Government is considering changes to the tax treatment of some family business succession arrangements ahead of the Budget. However, business owners should be wary of drawing conclusions from speculation, particularly where no formal announcement has been made.

Headlines around a potential "tax raid" on family businesses appear to stem from a recent HMRC consultation which considered whether existing legislation in specific circumstances could be strengthened - rather than from the creation of a new tax regime.

The consultation focused on arrangements used in a relatively small number of business transfers, where ownership is transferred in return for deferred consideration, often paid over time from future profits. It is not aimed at preventing legitimate family succession planning, nor is it linked to recent reforms limiting the scope of Agricultural Property Relief and Business Property Relief.

Understandably, any suggestion of further tax changes affecting family businesses is likely to generate a level of concern. Armstrong Watson's latest Family, Privately Owned and Owner-Managed Business Survey found that 82% of business owners view changes to Government policy as a key economic concern, while 86% cite increased taxation as a significant issue.

Legitimate succession planning is not the target

The overwhelming majority of business succession planning is driven by commercial, family and long-term strategic considerations.

In practice, most family business succession takes place through gifting arrangements rather than outright sales, while others use a range of structures designed to reflect the specific circumstances of the business, its owners and future leadership team.

Any future changes resulting from the consultation process are likely to focus on refining existing rules where individuals may be able to benefit from capital gains tax treatment in circumstances where HMRC believes income tax treatment could be more appropriate, rather than fundamentally changing the way family businesses are passed between generations.

Importantly, the consultation process exists to identify unintended consequences and ensure that commercial transactions are not disadvantaged compared with third-party sales. Even if such changes were introduced, business owners would still have a range of options available when planning for succession.

Focus on long-term planning

The Budget, on 28 October, may bring further change for business owners, and the detail will matter far more than the headlines that precede it.

For family businesses, succession planning should remain focused on long-term objectives and preserving flexibility for the future. What they need from this budget is greater certainty on which to base their plans.

Until any announcements are made, business owners are best served by understanding the issues being debated, seeking professional advice where appropriate and avoiding major decisions based solely on speculation.

Armstrong Watson is hosting a live webinar on Tuesday, 3rd November, at 9.30am. Join us to hear from our specialists in tax, financial services and accounting who will be examining the announcements and their impact.
To register for the webinar please visit https://armstrongwatson.info/47JlHMY