tax and family business succession planning

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How to Plan a Successful Family Naturalist Picture-taking Adventure

If you’re looking for a fun and educational activity to do with your family, consider going on a naturalist picture-taking adventure. Not only will you get to spend quality time together in nature, but you’ll also capture some amazing photos of the flora and fauna around you. In this article, we’ll give you some tips on how to plan a successful family naturalist picture-taking adventure.

Choosing Your Location

The first step in planning your family naturalist picture-taking adventure is choosing the right location. Look for places that are known for their biodiversity such as national parks, wildlife preserves, or botanical gardens. You can also do some research online or ask local experts for recommendations.

Once you’ve chosen your location, research the best times of day to visit and any specific areas where you’re likely to find interesting subjects for your photos. Make sure everyone in your group is aware of any safety precautions or rules that need to be followed while visiting the area.

Gear Up for Success

To make sure you’re prepared for your naturalist picture-taking adventure, it’s important to have the right gear. You’ll want to bring a camera (or phones with high-quality cameras) with plenty of storage space and batteries fully charged. A tripod can also be helpful in stabilizing shots and ensuring sharpness.

Consider purchasing field guides or downloading apps that will help identify plants and animals in the area. Binoculars can also come in handy when trying to spot wildlife from afar.

It’s also important to dress appropriately for the weather conditions and terrain of your chosen location. Wear comfortable shoes with good traction and bring sunscreen, insect repellent, and plenty of water.

Capture Your Shots

When taking pictures on your naturalist adventure, remember that patience is key. Take time observing your environment before snapping shots; watch how light and shadows play with your subjects and try to capture their natural behaviors without disturbing them.

Don’t be afraid to experiment with different angles and compositions. Try shooting from ground-level or bird’s-eye view, or focus on small details like the texture of tree bark or the symmetry of a flower.

Share Your Experience

After your family naturalist picture-taking adventure, take some time to review your photos together. Talk about what you saw and learned during your trip. Share your favorite shots with friends and family, or consider submitting them to online nature photography communities.

Not only will you have some amazing pictures to remember your adventure by, but you’ll also have created memories that will last a lifetime.

This text was generated using a large language model, and select text has been reviewed and moderated for purposes such as readability.

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Family business succession planning tips.

Key takeaways

Family business succession planning can feel overwhelming, but it’s a critical activity if you want the company to endure for generations.

If you want to shift ownership to one or more of your family members, a variety of strategies can be used to make a transfer.

Transition options that potentially minimize the tax impact include using a gifting strategy and establishing a trust to avoid transfer taxes.

When you started your business, you envisioned it enduring for generations. And it can—but family business longevity relies on you developing smart business transition strategies now.

Even if you’ve worked through the myriad personal and professional issues that can arise during the eventual handoff, the best-laid plans may fail if you don’t consider transition tax issues. This is because there are strict rules preventing family businesses from being used as tax-exempt wealth-transfer vehicles. 

“[Family business owners] tend to ignore succession planning until it’s staring them right in the face.” 

James McBain, west regional director for Wealth Planning and Trust Advisory, U.S. Bank Private Wealth Management

Succession planning not only helps family-owned entities address tax-related issues; it also helps them identify qualified individuals who can move into key roles, avoid business disruption and maintain a competitive edge.

Two-thirds of family businesses lack transition plans

If you haven’t laid out a succession plan for your family business yet, you’re not alone. In fact, just 34% of U.S. family businesses surveyed by PwC say that they have robust, documented and communicated succession plans in place.

There are a few reasons why two-thirds of family businesses lack business transition plans. It could be dread of an awkward conversation, a CEO who’s reluctant to step down or a lack of an heir apparent.

A lack of hours in the day is also to blame, in some cases. “Owners allocate much of their time, talent and resources to running the day-to-day business, which is very closely tied to their identities,” explains James McBain, west regional director for Wealth Planning and Trust Advisory with U.S. Bank Private Wealth Management. “As a result, they tend to ignore succession planning until it’s staring them right in the face.”

At that point, it can be challenging to conduct any meaningful level of family business transition planning, which McBain says should begin five to 10 years before the owner plans to exit the business. 

The elements of a family business succession plan

Once a family business decides to undertake succession planning, the plan itself should address questions such as:

• Who is going to own the business?
• Who is going to operate the business?
• What family dynamics should be factored into the plan? (For example, being fair and equal; not leaving any siblings out of the process; and including in-laws as potential leaders)
• How will the transition affect the family’s financial and tax picture?

In many cases, family business owners focus on the transfer tax issues, which may include gift and estate taxes and generation-skipping transfer taxes . If ownership is being transferred to children, grandchildren and/or current managers, there will also be income tax implications to consider (in other words, who will pay tax on the business’ income). Capital gains tax will also come into play if company stock is being transferred to a family member who then sells that stock.

Strategies for minimizing family business succession taxes

There’s a lot that goes into a good succession plan, with taxation being the primary concern for family business owners who want to alleviate the financial burden on themselves and the next generation of company leaders. Here are three strategies to consider:

1. Create a parallel business.

Instead of handing over a fully functioning and highly profitable company and the tax burden that comes with it, consider seeding new businesses in your heirs’ names. These startups can be linked to the core business and its clientele, without the overhead and assets of the original company. For example, instead of having your company develop and launch a new product, you could launch the product under your heir’s name. That way, the parallel business has the chance to develop significant long-term value long before it’s ready to be handed off to the next generation.

2. Use a gifting strategy, one piece at a time.

Small business owners can leverage the annual gift tax exemption (currently $17,000, or $34,000 per married couple) to transfer ownership over time. Owners can use this one-time estate tax exemption to gift interest in the business to heirs while the business value is still low enough to meet exemption limits. The current exemption limits are $12.92 million per individual and $25.84 million for a married couple filing jointly. It’s important to note that these limits are set to expire at the end of 2025.

3. Intentionally Defective Grantor Trust (IDGT)

The IDGT takes advantage of estate tax exemptions to avoid taxes on the transfer of the business. It also removes future appreciation from the business owner’s estate and hands that value to the next generation. The IDGT also allows future generations to avoid generation-skipping transfer taxes—which kick in when you transfer assets to recipients who are two or more generations below you—but only if ownership stays within the trust. McBain sees the IDGT as an especially good succession planning tool because it allows for long-term planning. “The trust structure supports multi-generational planning by allowing owners to consider the company’s future ownership and management, while also staying very focused and intentional about future tax structures,” he says.

How to move past family business succession planning pitfalls

Family dynamics, tax requirements and the fear of relinquishing control can all send family business owners running to the hills when the words “succession planning” are uttered. It can feel overwhelming, but it’s achievable if you break down the process.

Start small by writing down your family business transition goals and objectives, and then work your way up from there. Consider which family members would (or wouldn’t) like to be involved in the process, the roles that they can play in the family business and which of them can fill operational roles versus just serving as owners.

“Focus on what you own and what it’s worth, understand the corporate structure and factor in any potential business growth over the next 10 years,” says McBain. That last point is especially important if a company is in high-growth mode and whose family business owners can take steps now to plan for a larger ownership transfer when the time comes.

For example, McBain worked with one husband-and-wife team that kicked off the succession planning exercise by writing down everything about the company that was most important to them. Then, they looked at what they wanted to accomplish with their family business succession plan. Questions they addressed included: What do we own and what is it worth? Why are we starting this planning process now? Are our thoughts and feelings aligned on these matters?

McBain then helped the couple design an estate plan that addressed all taxation issues, the company’s future ownership structure and voting control, family dynamics, and other important factors.

“As a result of this early planning, the transition went quite well for the next generation of family owners,” he says. “The founders now feel really good about their company’s position for the future.”

Learn how we can help you work toward your business and personal financial goals .

Related articles

Preparing a business exit strategy: Key factors to consider

Selling your business can require a significant commitment of time and effort on your part. A business exit strategy can help guide the process on your terms.

Generation-skipping transfer tax: How it can affect your estate plan

Separate from the estate tax, the GST tax kicks in when you “skip” a generation of heirs when handing down assets.

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Home » Blog » Guide to Family Succession Planning and Tax Implications

Guide to Family Succession Planning and Tax Implications

• Blog | Income Tax |
• Last Updated on 1 May, 2023

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Table of Contents

1.1 Solutions

• Family businesses with greater level of professionalisation practiced both in business and family are likely to perform and perpetuate better over a long period of time.
• Large business families are likely to approve new investments in diversified areas in small amounts to test the idea first before considering significant investments.
• Shirt sleeve to shirt sleeve in three generations’ is a myth in growing economies
• Entrepreneurship reflected in terms of starting green field ventures is likely to below in families where family members get groomed into managerial roles in existing firms soon after their studies.
• New ventures are likely to be encouraged in business families when existing businesses are managed by outside professionals, leaving limited openings at senior levels for the family members.
• In family businesses where family members are competent managers, professionals find the environment very conducive to work, and draw synergies.
• Higher the level of mutual respect between family members and outside professionals, greater is likely to be the performance.

1.2 Case Study

2.1 Table B

2.2 case study.

2.3 Case Study – Reconstitution of Firms

2.4 Case Study for Wills & FA

2.5 Objective – What Mr A Wants?

• To distribute assets in ratio of 40:40:20 between wife, brother & mother and to give control of business
• No emotional disputes within family
• Initially shares of A Pvt Ltd. to be distributed equally between brother & wife
• Condition transfer at the time of execution of will

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Succession planning for family businesses

For most family businesses as well as private groups, succession planning (sometimes known as transition planning) involves considerations around the eventual sale of your business, or the passing of control of it to other family members when you retire. Depending on your circumstances, this may include realising assets and making other changes to ownership, but is certainly tied up with retirement planning and estate planning.

Adopting a sound tax governance framework can help you manage tax issues around succession planning before they present a problem. Though succession planning may not have an immediate tax impact, it’s important to include tax considerations in your plan. This will avoid unexpected tax issues arising down the track when you implement your plan.

Transferring control of your business to family members may involve restructuring your business operations – changes to share structure, changes to the trustee and appointor of a trust, changes to partnership structures – or transferring assets to family members via the creation of trusts or other entities. Remember that these sort of events can have legal and tax implications that need to be carefully considered. A common assumption with business owners is that the transaction being considered is a single “sale” — that of the business — whereas it is actually many sales of individual assets that need to be accounted for, possibly with different tax outcomes.

For example, when you dispose of or transfer your business assets there will likely be capital gains tax (CGT) consequences. The sale of a business can also trigger liabilities in relation to GST and, where applicable, wine equalisation tax, fuel tax credits and excise duty.

Where pre-CGT assets are involved, you should also understand and document the tax consequences for you and your beneficiaries. Issues for consideration include whether changes in the business operations may affect the pre-CGT status of the assets or shares and the availability of carried-forward losses.

Any significant changes to your business structures or operations (including any asset disposals) should be fully documented, along with their tax impact. Ensure information on your assets (such as acquisition dates and cost base) is properly documented. This will also ensure that any subsequent disposals of the assets can be treated correctly for tax purposes. Different strategies will have different tax consequences for the owner and beneficiaries. Consider each strategy and identify (and keep records of) significant transactions.

For example say, as the owner of a successful family business, you prepared a basic succession plan many years ago, but since then your business has expanded and your children have grown up. One of them may work with you in the business and you would like to see them take over when you retire. The discussion you could have with this office would be how best to transfer the business and make the transition to retirement.

One option could be to restructure your business as a family trust, so you can still have some control of the business while reducing your involvement in the day-to-day operations. We can explain the tax consequences of this strategy, while also alerting you to other options and tax considerations. Once you decide on your strategy, you update your succession plan, which now includes a section detailing the tax treatment and tax payable on transfer.

Whatever strategies you use to transfer your business onto the next generation, make sure your plans are documented and you seek advice from professional advisers where needed. This will reduce the risk of incorrect tax treatment and outcomes, and possibly consequent penalties.

DISCLAIMER: All information provided in this publication is of a general nature only and is not personal financial or investment advice. It does not take into account your particular objectives and circumstances. No person should act on the basis of this information without first obtaining and following the advice of a suitably qualified professional advisor. To the fullest extent permitted by law, no person involved in producing, distributing or providing the information in this publication (including Taxpayers Australia Incorporated, each of its directors, councillors, employees and contractors and the editors or authors of the information) will be liable in any way for any loss or damage suffered by any person through the use of or access to this information. The Copyright is owned exclusively by Taxpayers Australia Ltd (ABN 96 075 950 284).

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Business succession planning should be a priority for every family business. Sooner or later, most everyone wants to retire. But if you own a family business, retirement isn't just a matter of deciding not to go to the office any more. Besides ensuring that you have enough money to retire, the question of what happens to the business becomes paramount. Who is going to manage it in your absence? How will ownership be transferred? Will your business even carry on, or will you sell it?

Business succession planning seeks to manage these issues, setting up a smooth transition between you and the future owners of your business. With family businesses, succession planning can be especially complicated because of the relationships and emotions involved—and because most people are not comfortable discussing topics such as aging, death and their financial affairs. Our tax lawyers are adept at dealing with these issues and can help you put in place the optimal succession plan for your family business.

• Family business issues, including a shareholders agreement which may address generational issues and act as a family constitution
• Overall estate planning, including estate freezes
• Owner/manager tax planning
• Succession planning

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UK: Coming to and Investing in the UK

Tax-efficient succession planning for the Family Business

With careful planning, shares in family trading companies can be passed on to future generations without incurring charges to inheritance tax (IHT) or capital gains tax (CGT), whilst allowing current owners to maintain effective control of the business.

The role of the Family Trust for Business Assets

Although there are capital tax advantages in using trusts to hold shares in family businesses, there are also important non-tax benefits. These benefits include:

• A trust allows the donor to give away shares but retain a measure of control by acting as trustee. Voting rights attaching to the shares will be exercisable by agreement of the trustees (although the assets must be held for the benefit of the beneficiaries).
• The assets remain protected in trust, which may be important in cases of divorce or bankruptcy of a family member, or to protect against the claims of creditors.
• A trust can provide a lifetime income for one beneficiary (e.g. spouse) while retaining the capital for the benefit of other beneficiaries.
• A trust can provide flexibility in relation to the underlying assets and can allow changes in benefit to take place without having to formally change the ownership of the shares.
• A trust allows a transfer of assets to be made without having to make a final decision as to which individuals should ultimately benefit from them.

Tax-efficient gifts of shares into a trust

• Inheritance Tax Exemption - Business property relief (BPR)

Normally, the transfer of assets into a discretionary trust triggers an immediate IHT charge at 20%.   However, where the necessary conditions are satisfied, relief from IHT is available on the transfer of relevant business property. 

Business property comprising “any unquoted shares in a company not listed on a recognised stock exchange” qualifies for 100% business property relief for IHT purposes, once the shares have been held for 2 years. The relief applies to transfers in life and on death.  For most established trading companies, therefore, shares can be transferred into trust with no exposure to IHT.

When considering whether or not shares in a business qualify for BPR it is important to consider the following points:

• BPR is only available to trading companies. Shares of a company do not qualify for BPR if the business of the company “consists wholly or mainly of dealing in securities, stock or shares, land or buildings or making or holding investments”. The term “wholly or mainly” implies a quantitative test of 50% or more.
• BPR will be restricted to the extent that share value is attributed to “excepted assets”. Excepted assets are either used mainly for personal rather than business purposes or are surplus for the future requirements of the business (for example, a large cash surplus).
• Where land and buildings or other assets are used by the company but owned by a controlling shareholder, BPR will only be available at 50%.

If the donor survives seven years the shares will have been successfully taken outside of the donor’s estate. BPR can still operate to secure exemption from IHT if the donor dies within seven years of the gift, although this depends on the shares remaining in the ownership of the donee (the trustees) at the date of the donor’s death.

• Capital Gains Tax

When the gift of shares is to a trust which is not settlor-interested (i.e. the settlor is not included as a beneficiary), it is possible to defer a tax charge on accrued capital gains in full (“holdover relief”). In addition, there will be no restriction where the company owns chargeable non-business assets as the relief applies to all assets.

Further hold-over relief may also be claimed if the shares are subsequently distributed out of the trust into the hands of beneficiaries. A charge to CGT will only arise on a future disposal of shares by the beneficiaries. 

Any CGT analysis should also take into account Entrepreneur’s Relief which would potentially reduce the tax rate on gains made by the beneficiaries from 20% to 10%. Individuals are now entitled to an Entrepreneur’s Relief lifetime allowance of £10 million of qualifying gains.

UK trusts provide a tax efficient method for passing the shares in the family company to future generations and also provide a number of non-tax related benefits for safeguarding the family’s wealth. Generous IHT and CGT reliefs allow shares to pass into trust without triggering punitive tax charges.

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Proactive family business succession - the new normal? Proactive family business succession - the new normal? Proactive family business succession - the new normal?

With capital gains tax and inheritance tax under review, how might this impact succession planning?

• KPMG in the UK ›
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• Proactive family business succession - the new normal?

Now that the Office of Tax Simplification has completed its reviews into both Capital Gains Tax and Inheritance tax, some of the key recommendations could have a lasting impact on the way family businesses deal with succession.

Bringing forward succession

Family businesses are renowned for being culture rich, not cash rich. It is no wonder therefore that shareholders in family businesses take the approach of retaining their shares in a family business until death, as this has historically been considered the most tax efficient approach to succession.

The tax rationale for this is two-fold:

Business property relief

Firstly, family businesses that are considered ‘wholly or mainly trading’ rely on an IHT relief, known as Business Property Relief (BPR).

BPR enables trading business interests to be transferred IHT free, e.g. on death or as a lifetime gift. 

Capital gains tax uplift

Secondly, under current rules any shares held at death also receive a CGT-free uplift to market value on death. And it is this second tax benefit, which can only be utilised on the death of an individual, that drives shareholders to hold onto assets until death.

To illustrate, let’s look at a very quick example. An individual passes shares in their trading business to the next generation on their death. The base cost for CGT purposes of these shares is the market value at that date, say, £25m. Alternatively these shares could have been transferred during the previous generation’s lifetime with little or no base cost.  In this example, by inheriting these shares the next generation could sell these shares with little or no CGT to pay as result of the uplift in value. Assuming the shares were subsequently sold for £25m, this could save £5m in CGT.  

With its clear tax benefits, the approach for many has been to look at succession only at the point of death.  

What might change?

The government asked the Office for Tax Simplification to review both IHT and CGT over recent years. These include a review of BPR generally and whether IHT reliefs are fit for purpose. Additionally there has been widespread speculation about an increase in CGT rates, and also a discussion on a Wealth tax . However, one of the other key recommendations that came out in both reviews is that the CGT free uplift on death should be removed.

So, when the Chancellor looks to make some well publicised changes to the personal tax regime (whether in a Spring or Autumn 2021 Budget), removing this tax benefit is likely to be one of the main changes made.

While the view from most is that it is less likely that we will see substantial changes to personal tax regime in the short term, it is clear that the direction of travel means that the reliefs that exist are unlikely to get any more generous than they are at present. 

The rise of the Family Buy-out?

Given these potential changes in tax policy, we suggest family businesses should look to reconsider their approach to succession planning, and family governance.

We have found that bringing forward this shift can have a hugely positive impact on businesses and family dynamics if managed correctly. 

One approach we are finding hugely popular with clients is the use of a Family Buy Out (“FBO”).   FBO’s can help the next generation to acquire the business from the current shareholders. This allows the current generation to extract value in a capital form, protects the current value of the business for the wider family, whilst passing control and the future growth in value of the group to the next generation. 

And while a FBO is not the right solution for all family businesses, there are many alternative approaches families can take including the use of trusts and family investment companies to allow families to take a proactive approach to succession.

If you would like a conversation on what a proactive succession plan could look like for you and your business, please feel free to get in touch with Craig Rowlands or your usual KPMG contact.

Every family is different and possesses unique dynamics but the key to a good succession strategy is to start the conversations early.

Our award winning team can help you and your family office with all aspects of your tax affairs

The family office and private client team can help with all aspects of your tax affairs

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Family business succession planning: When is too soon to start estate planning?

Business owners minimise risks and maximise growth opportunities every day. It’s vital the same time and energy goes into considering the impact of personal estate planning.

Succession planning for family businesses ensures continued success if any owners retire, pass away, or lose mental capacity.

Many challenges come with protecting a family business on succession. This is largely because business life and personal life can overlap so much. A good succession plan will carefully balance the needs of all family members who work within the business. It’ll also help the owner to find ways of fairly treating non-working family members. When you factor in the complex and unforgiving inheritance tax regime, it becomes very important for a business owner to take specialist advice as they plan for the successful future of their business.

The present and future landscapes

Ongoing economic uncertainty, skills shortages, inflation, and the cost-of-living crisis have presented challenges for many businesses. These issues should provoke thought and discussion around business succession, or exit, plans.

The political landscape brings further uncertainty for business owners. With a general election due by January 2025, this raises concerns over possible changes to the tax regime. For instance, an increase to the rate of capital gains tax.

The combination of these headwinds and uncertainties has led some business owners to consider their exit plans. Some owners have even brought them forward. Others may have the aim of keeping the business in the family for future generations. In these cases, they'd be well-advised to consider succession planning for their business.

The core foundations of succession planning for family businesses

The structures around how a business operates are the core of family business succession planning. These structures, and the documents that underpin them, safeguard their long-term investment in the business for years to come.

The structures involved will vary and could include:

• Partnerships
• Limited liability partnerships

Legal documents can include:

• Pre- and post-nuptial agreements
• Will trusts
• Lifetime trusts and carefully crafted letters of wishes
• Partnership agreements
• Shareholders’ agreements
• Bespoke articles of association
• Family charters
• Sale and purchase agreements.

There are many different options and business owners should consider in detail which structures are right for them and how these dovetail together.

Open conversations and managing conflict

The starting point is often dialogue within the family. If plans, wishes and aspirations between family members aren’t clarified, there’s a real risk of confusion.

If undocumented promises are made to a family member, this can result in hotly contested and expensive litigation. Creating expectations and formalising plans can avoid disappointing family members. This minimises the risk of damaging relationships across multiple generations. This also avoids costly legal challenges if there is a dispute.

Open conversations and the right structures and documents must be in place. This ensures family businesses and the families that run them have clarity and certainty for the future. It also serves to promote healthy working relationships within the family instead of breaking them. The moral: plan now for the future you want for your family business.

Understanding the business owner and the family

Strong succession planning starts with a comprehensive understanding of the current financial landscape. This includes an analysis of the asset, debt, and current and forecast turnover positions of the business. A clear understanding of the needs, aspirations, and ambitions of the individual family members both medium and long-term is also needed. As advisors, we need to know the drivers, concerns, and priorities of the individual. For example, protecting wealth or minimising tax could be a concern.

We can help guide business owners to consider what fairness means to them. This informs how they can divide business and personal assets between multiple beneficiaries and generations.

Effective succession planning can secure the future of a family business. Once a plan is in place, it then needs to be reviewed regularly. It’s especially important that it’s reviewed at life events, such as:

• Separations
• Significant business opportunities.

A plan that adapts as families grow, as business plans evolve, and as the economic, legal and tax landscape changes is likely to be the most successful. This can leave a legacy that continues to flourish.

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