If you are a business owner who is considering selling your trading company, you may be looking for ways to maximise your tax benefits and protect your assets. One strategy that you might consider is transferring your Business Relief qualifying shares into a Discretionary Trust before the sale to a third party. Here’s what you need to know.
What are Business Relief qualifying Shares?
Business Relief (“BR”) qualifying shares are shares in a trading company that are eligible for a tax relief provided by the UK government to help reduce Inheritance Tax (IHT), subject to certain conditions being met.
It’s important to note that the rules for BR qualifying shares can be complex, and the criteria can change over time, so it’s essential to consult with a tax specialist to determine whether your shares are eligible for Business Relief.
Transferring shares to a Discretionary Trust
A Discretionary Trust (“DT”) is a type of trust where the trustees have discretion over how the trust assets and income are distributed among beneficiaries. By transferring your BR qualifying shares to a discretionary trust prior to a sale, you can ensure that the shares are held outside of your estate, which can help reduce the potential IHT liability for your heirs.
Benefits of transferring Shares to a DT
By transferring your BR qualifying shares into a DT, you can benefit from several advantages:
- Reduce Inheritance Tax: The transfer of shares to a discretionary trust can help reduce the potential IHT liability for your heirs since the shares held in trust would sit “outside” of your estate for IHT. Please note, the DT itself might be subject to 10-yearly IHT charges depending on the type of assets it holds.
- Asset Protection: By holding shares in a discretionary trust, you can protect them from creditors or legal action against you or your estate.
- Control and Flexibility: As the settlor of the trust, you can retain a level of control over the trust assets and appoint the trustees who will manage the trust.
Transferring your BR qualifying shares to a discretionary trust before the sale of your trading company can provide several benefits, including potential IHT savings and asset protection. However, it’s important to consult with a tax specialist to ensure that this strategy is appropriate for your specific circumstances and to ensure that the trust is set up correctly.
By taking these steps, you can protect your assets and ensure a smooth transition for your business and your heirs.
