Pass your business to family

Decide what you are passing on, and when

You can pass your business on in your lifetime, by giving it away or selling it to a family member, or on your death through your will. Many owners do it in stages: bringing a son or daughter into a partnership, or giving them shares over several years while they take on more of the running.

What you transfer depends on how the business is set up. A sole trader transfers the business and its assets. A partner transfers their share of the partnership, which needs the other partners' agreement. A company owner transfers shares, and the company carries on unchanged. Whatever you do, the tax is worked out on what the business is worth, not on what you are paid for it.

Capital Gains Tax when you give the business away

A gift to a family member, or a sale to them for less than the business is worth, is treated as a sale at market value. You can make a taxable gain even though you receive little or nothing. Gifts between spouses or civil partners who live together are the exception: they create no gain or loss.

Gift hold-over relief lets you postpone the gain on business assets or shares in a trading company. You and the family member claim it together. No tax is paid when you give the business away, but the gain is passed to them: they pay it when they later sell, on the difference between what they sell for and your original cost. You can choose not to claim hold-over relief and pay the tax now instead, for example if the family member plans to sell soon and would pay more tax on the gain than you would. Compare both positions, including any Business Asset Disposal Relief you could claim, before you decide.

Selling to family at full value

If a family member buys the business at its full value, it is treated like any other sale. You pay Capital Gains Tax on the gain and may qualify for Business Asset Disposal Relief. Agree the price with an independent valuation, so HMRC does not treat part of the sale as a gift.

Inheritance Tax and Business Relief

Business Relief reduces the value of a business, a share in a partnership or unlisted company shares for Inheritance Tax, if you have owned it for at least 2 years. It applies when you die and to gifts you make in your lifetime.

A lifetime gift to a family member is not taxed when you make it. It only becomes subject to Inheritance Tax if you die within 7 years. Business Relief then only applies to the gift if the family member still owns the business, or qualifying property that replaced it, when you die, and it still qualifies as a business. If they sell it and do not reinvest, the relief is lost. Gifts into most trusts are treated differently and can be taxed when made.

No Capital Gains Tax is due on assets you leave on your death. The family member who inherits takes them at their value on the date of your death.

Hand over the running of the business

Tax planning is only part of succession. Plan the handover too:

• train your successor and introduce them to key customers, suppliers and staff well before you step back
• for a company, sign a stock transfer form for the shares, update the register of members, and tell Companies House about new directors and people with significant control. There is no stamp duty on shares given for nothing
• for a partnership, follow your partnership agreement to admit your successor and retire, and tell HMRC and, for a limited partnership or LLP, Companies House
• for a sole trader business, your successor registers as self-employed and takes over the assets, contracts and any lease. Your employees transfer to them under TUPE on their existing terms
• transfer or reapply for licences, permits and registrations held in your name, and change bank mandates, insurance and VAT registration
• make or update your will, and a lasting power of attorney, so the business is not left without anyone able to act for it