You’ve inherited a business – now what?

Inheriting a business is an honour. But it can also weigh heavily on you. There’s pressure to continue the legacy established before you and feel like you’re doing right by your loved one. There’s also the chance you inherited the business unexpectedly, which can be overwhelming. Hopefully, there were succession plans in place, you know the ins and outs of the business, and the team is familiar with your leadership.

Regardless of the situation, having a trustworthy wealth manager and other professionals can significantly help you during the transition.

Once you fully understand the state of the business, you can contemplate your next move.

Start here

You’ll want to understand the financial and operational status of the business. It’s crucial to evaluate the current value of the business and its potential future under new leadership. If the business heavily depended on the personal expertise or relationships of the deceased, for instance, it might be challenging to take over seamlessly.

The first step in inheriting a business in the UK is to understand the tax implications, particularly regarding Inheritance Tax (IHT). The value of the business is included in the deceased’s estate, but Business Property Relief (BPR) may reduce the taxable amount by 50% or 100%, depending on the business type. It’s crucial to gather all relevant financial documents, such as the balance sheet, and consult with a tax professional to accurately assess the estate’s value and determine eligibility for BPR. This step ensures compliance with HMRC guidelines and helps in planning for any potential tax liabilities.

Ideally, the decedent had a succession plan, and you (as the inheritor of the business) were fully prepared for and briefed on it, so these considerations are already part of the discussion and time is on your side.

Options for moving forward

Once you have a complete understanding of the business, you can decide on the best course of action. Just because the business was passed down to you doesn’t mean you need to run it or even keep it. While you may feel a strong connection to it or feel obligated to continue operations, it’s acceptable to recognise if it’s not the right fit for you. Here are three options to consider:

• Run the business. If you plan to lead the business, start by understanding it and avoid making radical changes immediately. Review bank statements and other paperwork to determine the financial status and notify vendors and customers of the change in ownership (and leadership) as necessary. Work with employees to ease the transition; be patient as the transition may mean a strong cultural shift. Once you’ve streamlined the operational and functional aspects, you can create room to focus on practical future plans.
• Keep the business and enlist a team of professionals. Bringing on a business partner to share the burden of ownership may be an option if you want the business to remain operational but you’re not sure how much interest you have in working in it. Another option is hiring professionals to share the workload, such as a solicitor or accountant. They can offer valuable expertise, share the workload, and help make the transition easier. It’s wise to consult with professionals and formalise this by getting an agreement on paper.
• Sell the business. You may decide that selling the business is the best course of action. The next step is to determine the most effective way to sell it. Depending on the type of business, the options will vary. For example, a buyout might be the best avenue for a company, whereas selling a smaller business might be better achieved by offering it to an independent third party. A business broker may be able to help you navigate this decision.

Taking on the responsibility of your loved one’s business is a significant task, but there’s good reason they entrusted it to you. Be kind to yourself as you navigate this journey, as it comes with both financial and emotional challenges. Remember you’re not in it alone. Your wealth manager and other trusted professionals can provide support and guidance.

Sources: Business Relief for Inheritance Tax: Overview – GOV.UK