Running a family business, whether as a company, partnership or other unincorporated business, can have tax efficiencies and they are well worth looking at when the tax year end approaches.
Involve family members in the business
For family companies and unincorporated businesses, involving family members in the business is usually a good planning option. It means you can multiply the opportunities to extract profits before reaching higher rates of tax. It can also be useful if you have a spouse or child who might not otherwise use their Personal Allowance.
| Action point: review change to the Employment Allowance |
| New rules on the Employment Allowance (EA) increase the maximum EA from £5,000 to £10,500 from 6 April 2025. This has the potential to lessen the impact of the increase in employer National Insurance contributions (NICs) taking effect from the same date. The EA cannot be claimed by single director companies where the director is the only employee paid above the secondary Class 1 National Insurance threshold. Where there is genuine scope to remunerate another employee at a level above the secondary threshold for employer NICs, this could enable access to the EA. |
Get the detail right
HMRC is always keen to check the reality behind family arrangements, and it’s important to make sure that family employed in the business really do play an active role. Remuneration must also be commercially appropriate: the rule that remuneration must be incurred wholly and exclusively for the purpose of the trade applies just as much to family members as to anyone else. It is also important to make sure that you can evidence the work carried out by family members.
Note that where a non-working spouse is given shares in what is otherwise a one-person private company, HMRC may consider this falls under what is known as the ‘settlements’ legislation, and look to tax the working spouse on all the dividends. Please talk to us for more information in this area.
Plan for business succession
Retirement may seem a long way off, but advance planning is always needed to dispose of a business, or pass it on to the next generation tax efficiently.
Use shareholding to bring change
It can be difficult to know how and when to start on the process of bringing the next generation into a family business. Perhaps optimally, it is a phased process. Incoming family members can be given the chance to get involved in the business and demonstrate commitment while the senior generation retains control.
The use of different types of shares with different rights attached (sometimes called alphabet shares) can be particularly flexible in this context. Over time, the percentage stake in the business can be recalibrated, this being used to pass the baton from one generation to another. As always with tax, the detail is important. Please talk to us for more advice.
New rules
Major change to the rules announced in the Autumn Budget 2024 brings a new outlook for planning, especially as regards Business Asset Disposal Relief (BADR) for Capital Gains Tax; and Business Property Relief and Agricultural Property Relief for Inheritance Tax. These changes are set out fully in the Capital Taxes section.
BADR has always been a key relief for the disposal of a business or business assets. For 2024/25, where available, BADR charges the first £1 million of qualifying lifetime gains at an effective rate of 10%. However, the rate of tax increases to 14% for 2025/26 and 18% from 2026/27.
Careful attention to the way a business is owned and structured is essential to ensure eligibility. Various ownership conditions apply. They require, for instance, a minimum period of ownership of two years up to the date of disposal, as well as the requirement to hold at least 5% of the company’s ordinary share capital, and the ability to exercise at least 5% of the voting rights.
If you would like to discuss these matters with an Accountant and Trusted Business Adviser get in touch with us. We are UK-based accountants and offer a range of Outsourced accounting services and Part time CFO services. For a free no obligation consultation email info@teamsas.co.uk or call 0118 911 3777.
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