Legacy planning on the sale of a business
Mr Greencoat invested the proceeds from the sale of his business to protect the capital from inheritance tax and defer the Capital Gains Tax.
Mr Greencoat inherited the family’s manufacturing business twenty years ago and has recently sold the company and is looking forward to retirement.
Mr Greencoat received £5 million from the sale of the business and now no longer works for the company. Mr Greencoat is 65 and his wife is 62, they have two children both of whom have had a good start to their respective professional careers.
Mr & Mrs Greencoat now need to start making definitive plans for their legacy and have an estate significantly above the IHT nil rate band. Their financial adviser has made them aware of Entrepreneurs’ Relief and they have some time before any payment of tax is due. Ten years ago, their adviser recommended a number of trusts be set up for the children. The Greencoats are therefore exploring options for the gain on the sale of the business.
Inheritance Tax Planning
Their financial adviser has discussed the use of Business Relief for the Greencoats, since they had the potential benefit of this relief whilst they owned the company. By setting up their own company through the Stellar Business Inheritance Tax Service, they should continue to get 100% relief from IHT on the capital invested. Their adviser confirmed that because they had owned the company for more than two years, the IHT relief could be reinstated by investing an amount, up to the proceeds of the sale of the old company, in a Stellar Business Company. The IHT relief would be available once the Stellar Business Company was trading. The adviser noted that this was available under the Replacement Provisions of Business Relief.
Capital Gains Tax Planning
As noted earlier, the Greencoats had been made aware that up to £1 million of the proceeds should qualify for Entrepreneurs’ Relief.
The adviser again pointed out that this can be mitigated entirely if the proceeds are reinvested in a qualifying business. The Greencoats liked this because it meant they should save a significant amount of CGT and benefit from 100% relief from IHT.
A few weeks later, and following meetings with both their accountant and financial adviser, the Greencoats invested £5 million in the Stellar Business Inheritance Tax Service.
If the Greencoats held the shares in the Stellar Business Company until their deaths then the CGT would be permanently saved.
The capital was invested in their name and allowed the Greencoats to pass a tax free legacy to their children, with immediate relief from IHT of £2 million and a potential saving of a significant amount of CGT.
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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.