For any business leader, the time will eventually come for you to hand over the reins to someone else, and it is imperative that you plan ahead of time to ensure a smooth transition.
In the world of haulage, this involves making sure your successor is confident in organising a large vehicle fleet, supply chain management and maintaining relationships with clients and customers long after your departure.
There’s a lot to consider when handing over the keys to your business, be it choosing the best candidate, the type of handover deal you want to sign, getting all your documents up to date, or even just doing your research around the future direction of the business beyond your leadership.
There are sentimental decisions to make, as well as financial ones, but ultimately, succession planning is all about preserving the legacy of your business and setting it up for the future - and both sentiment and finances play equally important roles in the process.
When it comes to family-run businesses, a common practice for succession planning is to hand over ownership to another member of the family, whether it is a spouse, sibling or one of your children. This adds an additional layer of sentiment to the deal, meaning it is not only your business that is directly affected by the change, but also your immediate family and loved ones.
While this is the misty-eyed option when it comes to choosing a successor, handing ownership over to your family can also come with complications. Adult children may have career aspirations of their own, perhaps outside of your business, or they may also lack the skills or experience required to take on the driving seat of a successful company. This means the process of selecting your successor should begin long before you announce your departure, as you will have to provide training and pass down the relevant knowledge to whoever is set to take control of your business.
If you don’t wish to pass the company onto a family member, you can also make the most of something called an employee ownership trust (EOT), which holds a majority stake in a business on behalf of the employees. This is a streamlined option if there isn’t an obvious third party buyer interested in taking over the company, and it means owners can also maintain an interest in the business in the form of shares of up to 49%. An EOT can enable employees to be paid annual bonuses of up to £3,600 completely free of income tax, and the owner can place funds into a trust without being hit by capital gains or inheritance tax charges.
Should family be your chosen option, though, it is wise to explore all your financial options around structures like trusts and inheritance tax plans.
A key strategy you can utilise for succession planning is lifetime gifting, which is the practice of transferring business assets to trusts or family members in order to reduce the value of the business and thus shrink future inheritance tax bills. A vital consideration for lifetime gifting, though, is the seven-year rule, which states that any gift made more than seven years before your death is exempt from inheritance tax, so the earlier you do this, the better.
The Chancellor also announced changes around undrawn pension funds and death benefits in her most recent Budget, which will see both included within the value of a person’s estate. This comes into action from April 2027, and places inheritance tax on someone who dies over the age of 75, with income tax then placed on beneficiaries of the inherited pension fund. It translates to an effective tax rate of 67%, so you must be aware of these changes when considering your succession planning.
Another method which can prove useful in keeping tax passdowns low is to open a family investment company (FIC), a private company that can hold and manage an entire family’s wealth, and often translates to a smaller tax bill on any investments. The FIC can be funded by a loan repaid on profits that remain free of taxation, all while maintaining other family members as shareholders. Once the loan is paid off, profits are taxed at regular corporation tax rates, lower than the thresholds of personal income tax rates. Such is the structure of an FIC, it is often seen as the best way to properly plan for your business succession.
Contact us to find out more about how Duncan & Toplis can support haulage businesses with succession planning.
