Making the most of your proceeds

Securing an Exit series

If you’ve stepped away from your business and received money in doing so, you need to think about how best to protect your funds in the future.

Minimising tax is an obvious priority for most, and is something you can plan for both before and after exit. You may also have clear ideas about how you wish to use your funds. Would you like to protect it for your family’s financial future or set it aside for a particular purpose?

Here are some of the key areas of focus for our clients who have successfully sold their business and now hold significant wealth.

1. Structures for holding your wealth

Many of our clients want their business assets and value to support the whole family, including future generations. It’s important that you think about your long-term intentions for your funds, as there are several potential options that may suit you:

Direct ownership - This is the simplest way to hold your assets and maintain complete control, but you may be subject to significant amounts of inheritance tax, capital gains tax and income tax. In the case of inheritance tax rules, for example, they will apply to any assets held personally. Each individual has their own “nil rate band” of £325,000. After that, inheritance tax may be charged at 40%, though careful estate planning can help you make the most of potential exemptions and reliefs. Depending on the nature of your assets and your level of income, capital gains tax may also be an issue when you want to dispose of them. It’s best to seek advice to make sure you know how capital gains tax will impact your assets.
Outright gifts - Gifting business assets or proceeds of sale to individuals could save them money in inheritance tax. First and foremost, you’ll need to consider how much you can afford to give away. Secondly, gifts to children may be at risk if that child dies, divorces or becomes bankrupt. You’ll also need to think about the potential tax consequences of making gifts. They can potentially still be included within your estate for inheritance tax purposes if they have not been dealt with correctly. You may also be liable for capital gains tax, as a gift will count as a disposal by you for tax purposes
Trusts - Trusts are another effective way to move assets outside of your estate for inheritance tax purposes whilst still retaining a degree of control. Parents can name children as beneficiaries, for example, and appoint themselves (or other trusted advisers) as trustees to manage the trust according to their own wishes. Trusts have their own tax rules for capital gains and income tax, which vary depending on the type of trust. Make sure you’ve considered the nature of the assets and the overall planning intention to use trusts as effectively as possible.
Family Investment Companies (FICs) - Again, these can prove useful for inheritance tax purposes, and you can keep your voting rights and directorship. There is the option for dividends to pass to you or your children and these structures allow for long term family governance that aligns with your vision for investment. FICs can be an alternative to trusts, but they’re taxed differently and are subject to corporation tax. Distributions can be dealt with as dividend payments.

2. Diversifying your assets

If a substantial part of your wealth is now made up of cash, moving this across to a portfolio of assets, such as your pension funds, tax-efficient saving schemes or real estate, could offer protection. There are many considerations here and it’s a good idea to work with an experienced financial planner or adviser to help you navigate the options. They will help to clarify your current needs and income requirements for retirement, so you can invest with your unique future in mind.

3. Reinvestment

You could also reinvest your money into other ventures and become an angel investor, supporting early stage businesses with both your capital and experience. Both the UK Business Angels Association and UK Angel Investment Network have published various guides and insights to help potential investors understand what is involved. It’s also well worth exploring regional angel groups and investment programmes if you’re keen to support your local economy.

If you’d like to know more about any of the issues or steps we’ve discussed, please get in touch with a member of our Corporate team or Private Wealth team.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at September 2021. Specific advice should be sought for specific cases. For more information see our terms & conditions