Legacy planning for a trading business
Mr Thompson invested cash from his trading business to provide relief from inheritance tax (IHT).
Mr Thompson is 62 and is the sole owner of Thompson Electricals, a business he started in 1985 and built up a chain of 10 stores from the East Midlands. He sold
the stores six months ago and his company, Thompson Electricals now has cash of £6 million arising from the sale proceeds. He has sought advice, from his financial adviser and accountant, how he could utilise these proceeds as tax efficiently as possible. Mr Thompson is looking forward to a less active future and has no desire to start another business now his grandchildren have arrived. As Thompson Electricals has been a successful business, he was able to draw substantial earnings over the last 10 years which have been invested wisely, and he has also contributed fully to his pension. He has no immediate need for the capital in the company.
Following the sale of the stores, Thompson Electricals has a capital gain which will result in a significant corporation tax bill.
Mr Thompson was specifically recommended the Stellar Business Inheritance Tax Service so he could use the capital in Thompson Electricals in situ. This means Mr Thompson could not only keep the company, but also reinvest the surplus cash into a range of new business activities, which should qualify for Business Relief. As Mr Thompson has owned his shares in Thompson Electricals for more than two years, the Shares should be free from IHT once the qualifying business activities are underway.
Mr Thompson’s accountant also pointed out that Thompson Electricals may be able to take advantage of Business Asset Rollover Relief to defer the corporation tax payable by acquiring new business assets. Mr Thompson was happy to appoint Stellar as directors to the board, but was pleased to be given the choice to have an active involvement in the future, if he so wished.
Mr Thompson and Thompson Electricals had benefited from the Stellar Business Inheritance Tax Service, as follows.
- Reduce corporation tax payable on the gain from the sale of the stores, by claiming Business Asset Rollover Relief.
- Continued eligibility for Business Relief (BR) which should lead to a 100% reduction in IHT on the value of the company.
- Continued eligibility for Entrepreneurs’ Relief which should lead to reduced rates of CGT if Mr Thompson decides to sell his portfolio.
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This document dated 7th December 2022 is intended for retail investors and their advisers and has been approved and issued as a financial promotion under the Financial Services and Markets Act 2000 by Stellar Asset Management Limited (‘Stellar’). This document is for information only and does not form part of a direct offer or invitation to purchase, subscribe for or dispose of securities and no reliance should be placed on it. Stellar does not offer investment or tax advice or make recommendations regarding investments. Stellar is authorised and regulated by the Financial Conduct Authority (Firm reference No. 474710). Registered in England No. 06381679. Registered office: 20 Chapel Street, Liverpool L3 9AG.