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Leaving a business in your Will
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Home / Making a Will / Creating your Will / Leaving a business in your Will

If you are a sole trader or are a partner in a business the assets of your business or your share in assets owned by the partnership will be treated as part of your estate when you die.

What will happen to the business if I die?

If you are a sole trader and you want to pass on the business to another person in the event that you die it is a good idea to make a will. By making a will you will have the opportunity to ensure that the business passes to those whom you would like to take over the running of the business.

If you are a partner in a business you may well have signed a partnership agreement. Most written partnership agreements contain provisions as to what will happen if one of the partners die. If there are more than two partners the partnership will probably continue if you die. Otherwise the partnership will come to an end.

What will happen to the assets of the business if I die?

If you make a will you will normally be able to control what happens to the assets of the business, or your share of the assets, should you die.

If you don’t make a will, then the assets will pass according to the “rules of intestacy”. This may result in your assets passing other than in accordance with your wishes. For more information about the rules of intestacy read our article called “what happens if I die without making a will”.

If you own any property jointly with another person, for example, a business partner and the property is held as a “joint tenancy” then your share in the property will automatically pass to the surviving joint tenant(s) if you die regardless of what your will says. For more information about joint tenancies read our article called “property held as joint tenants”.

Inheritance Tax implications

Inheritance Tax is a tax which is payable by the estate of a person when they die if their estate is above the Inheritance Tax threshold. Inheritance Tax is also payable sometimes on gifts or trusts made in the seven years before a person’s death. For the tax year 2010-11 the rate of Inheritance Tax payable is 40% and the threshold is £325.000.

Sometimes Inheritance Tax is not payable even where an estate exceeds the threshold. This is because there are certain exemptions and reliefs available. One of these reliefs is Business Relief.

If you own a business or a share of a business Business Relief may enable you to pass on some of the business free of tax, either during your lifetime or by making a will.

When can Business Relief be claimed?

Business Relief can be claimed on the following:

  • a business or an interest in a business;

  • shares that are not listed on a recognised stock exchange;

  • a holding of shares or securities which give you control of a company that are fully listed on a recognised stock exchange;

  • land, buildings, plant or machinery that are used wholly or mainly by the business during the last 2 years before the business was passed on or since the business acquired them more recently;

  • land, buildings, plant or machinery used by the business and held in a trust where you had the right to benefit from.

Business Relief cannot, however, be claimed if:

  • the business is a not-for-profit business

  • the business deals mainly in stocks, shares or securities, land or buildings, or in holding or making investments;

  • the business is subject to a contract for sale, unless the purchaser is a company that will carry on the business and the purchase price is to be paid wholly or mainly by shares in the company that is acquiring the business;

  • the company is being wound up, unless the process is to enable the business of the company to carry on;

  • the asset in question was not used mainly by the business in the 2 years immediately before it is passed on by a will or as a gift made during the person’s life;

  • the asset in question is not needed for future use by the business;

  • Agricultural Relief is also available.

What relief is available?

The rate of Business Relief depends on the type of asset in question.

For the following types of asset 100% relief is available:

  • a business or interest in a business;

  • a holding of shares in a company that is not listed on a recognised stock exchange.

The rate is 50% for the following types of asset:

  • shares controlling more than 50% of the voting rights in a company listed on a recognised stock exchange;

  • land, building, plant or machinery used by a business that you are a partner in or over which you have control at the time of your death;

  • land, building, plant or machinery which are held in trust and where you are a beneficiary under the trust and use the assets in your business.

By making a will you may be able to reduce your estate’s liability for Inheritance Tax or even avoid your estate from paying it altogether.

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Single Will or Mirror Wills?

If you are a couple and wish to leave all your assets to each other then you could save money by making  Mirror Wills. You can also use Mirror Wills if you whish to leave your estate to the same beneficiaries. 
 
If you wish to leave different legacies, appoint different executors or you would like to specify individual funeral wishes then you will need to make two Single Wills.
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