One of the most difficult conversations we have with business owners rarely starts with tax.
Instead, it starts with a simple question. “I’ve got two children. One has worked in the business for years. The other has never been involved. How do I treat them fairly?” It’s a question that doesn’t have a right or wrong answer.
Because fairness doesn’t always mean equality. And if there’s one area where succession planning often goes wrong, it’s assuming those two words mean the same thing.
Many parents instinctively want to divide everything 50:50. After all, they’ve always tried to treat their children equally. But businesses are different.
Imagine one child has spent the last fifteen years helping build the company. They’ve worked long hours. Taken commercial risks. Sacrificed higher-paid opportunities elsewhere.
The other child has chosen a completely different career and has had little or no involvement in the business. Should they each inherit half? Legally, they can. Whether that’s the right commercial decision is another matter.
Cash can usually be divided. A trading business often can’t. Giving equal shares to children with different levels of involvement can unintentionally create problems for everyone.
The child running the business may suddenly need approval for important decisions from someone with no experience or interest in the company. The child who isn’t involved may feel frustrated that their wealth depends entirely on decisions they don’t control.
Neither outcome is ideal.
Sometimes the fairest outcome is for the child working in the business to inherit the company, while other assets pass to the other child. That might include investment properties, savings, pensions or life insurance proceeds.
Sometimes parents decide that ownership should remain equal, but voting control should sit with the child running the business. Others gradually transfer shares over a number of years as the next generation becomes more involved.
There is no standard answer. The right solution depends on your family, your business and your long-term objectives.
Tax is important. Inheritance tax, Capital Gains Tax and reliefs such as Business Property Relief can all have a significant impact on the outcome. But they shouldn’t be the starting point.
The first question should always be: “What does success look like for my family?” Once that’s clear, the tax planning can be built around it.
Too often we see families make decisions purely because they’re tax efficient, only to discover years later they’ve created problems, resentment or disputes between siblings. Saving tax is valuable. Protecting family relationships is priceless.
Many business owners think succession planning begins when they’re ready to retire. In reality, it often starts much earlier. Gradually introducing the next generation into leadership. Testing whether they actually want to run the business. Considering whether ownership and management should sit with the same people. Reviewing shareholder agreements. Updating wills. Thinking about inheritance tax.
These conversations don’t need immediate decisions. But they do need to happen.
Because once circumstances change through ill health, retirement or death, the options available may become much more limited.
Succession planning is rarely about choosing who gets what. It’s about protecting everything you’ve spent years building. The most successful transitions aren’t necessarily those that save the most tax. They’re the ones that leave both the business and the family in a strong position for the future.
Sometimes that means treating everyone equally. Sometimes it doesn’t. And that’s perfectly okay.
Should I leave my business equally to my children?
Not necessarily. While an equal split may seem fair, it can create practical difficulties if only one child is actively involved in running the business. Every family’s circumstances are different, and it’s important to consider both the commercial and family implications.
Can one child inherit the business while another inherits other assets?
Yes. Many succession plans are designed this way. The aim is often to achieve overall fairness by balancing the value of different assets, rather than dividing each asset equally.
How does inheritance tax affect succession planning?
Inheritance tax can have a significant impact, but it shouldn’t dictate the entire plan. Reliefs such as Business Property Relief may reduce the inheritance tax payable in some cases, but they are only one piece of the wider succession planning picture.
When should I start succession planning?
Ideally, long before you intend to retire. Starting early gives you more flexibility to involve the next generation, consider different ownership structures and make changes gradually rather than under pressure.
If you think you are at the point where you would like to look at succession planning then please get in touch.
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