FACT FILE: Wealth Protection & Inheritance Tax Planning

As a business owner, it is imperative to think about protecting your wealth for your family, business succession, and building a legacy so that your hard work does not go to waste. A Lifetime Business Tax Plan is an all-in-one solution to protecting wealth at the same time as growing it for the generations to come. It is made up of two structures, both of which facilitate optimum tax efficiency and inheritance benefits: the Family Investment Company, and the Small Self-Administered Scheme (SSAS).

The Family Investment Company element of the plan means that your company shares and assets are held in trust for your beneficiaries. For business owners, it is a more appealing alternative to a traditional trust arrangement, providing extensive flexibility and Inheritance Tax benefits. It is a tax-efficient way to protect wealth, hold assets and pass them down through the generations. It also simplifies succession.

Meanwhile, a SSAS can have up 11 members, which can include employees or family members, automatically making them trustees. Assets held in a SSAS are ring-fenced outside of your estate, meaning they are not liable for Inheritance Tax when you pass.

What many business owners fail to realise is that by investing or even holding excess company cash in their trading company, they risk being deemed an investment company by HMRC. By moving your retained company profit into a Family Investment Company, you remove the risk of incurring a 40% tax charge for your family and protect Business Property Relief (PBR) for your trading company. It also allows you to invest this company cash in the asset classes you choose, including property, all within HMRC rules.

Any profits that are made from investments are then liable for Corporation Tax, as opposed to the higher rates of Capital Gains or Income Tax, as would otherwise be the case. This alone, creates significant tax savings, thus ensuring more of your hard-earned money goes to your family rather than the tax man.

A significant benefit of a SSAS is that it can receive your dormant, frozen or current pensions, which can then be invested in your trading company, property, or other asset classes. Moreover, family members and key employees are also permitted to pool dormant or current pensions to increase the investment potential of the SSAS, with each member retaining the percentage value of the pot that they put in, as it grows.

By taking control of your own pension funds, combining them and pooling with others, you have far more power and flexibility to invest, loan to your business, create aligned strategies for all your funds and ensure your wealth is protected for your family.

Surplus cash remains under full control of the company director and is moved into the Family Investment Company, which is also fully controlled by the company director. Cash can be returned to the main trading company at any time, should a cash injection be required. If the director chooses to invest the cash, then the returns can be paid into the SSAS without a tax penalty. The SSAS is also controlled by the members of the scheme, giving you full control, with the long-term beneficiaries of both parts of the plan named should the worst happen.

The beauty of a SSAS pension, when it comes to inheritance planning, is that not only can you use it yourself, but you can also still grow and leave a legacy for your family.

The SSAS can be used as a tax-efficient wrapper to vastly grow your pension pot. Trustees can invest in all investments allowed by other pensions, plus a whole host of other investments. Some schemes invest directly in the business premises or any other valid business purpose, to great tax advantage; others might invest in other commercial property or indirectly into property loans to an unconnected third party. As part of the Lifetime Business Tax Plan, you can also make investments with the Family Investment Company, then move any investment profit into the SSAS to mitigate tax, ensuring more funds for yourself and your family.

Upon the death of a SSAS member, benefits within the SSAS can be paid to your beneficiaries.. These do not form part of the estate as they are owned by the SSAS and are being held in trust, therefore, not liable for Inheritance Tax. Whilst there are still funds within the scheme, the whole SSAS can continue to be passed down through the generations. With the correct investment strategy, the SSAS pot will continue to grow in a protected, ring-fenced environment.