Preparing for your post-exit future

Exiting a business requires years of meticulous planning, but what about your personal plans post-exit?

Thinking about life after you’ve left your business behind can be both an exhilarating and daunting prospect, but it’s a crucial aspect of your exit plan nonetheless.

Laura Dickson discusses key aspects to consider when planning your personal finances post-exit.

Running a business is all-consuming, so looking beyond the day-to-day can be difficult. Having a thorough plan that addresses your personal goals will allow you to structure your financial and tax planning in accordance.

So, whether you’re considering taking a different role within the business community, investing elsewhere, or passing on your wealth to family in a tax efficient way, a well thought out plan is the first step.

Here are a few essential considerations to get you started.

Is now the time to invest in another business?

The entrepreneurial spirit in you isn’t likely to dwindle out overnight. So, you might be considering whether to invest in another business or start-up after you leave your own. If you do decide to invest, you should plan how this can be done effectively beforehand.

There are a number of tax reliefs on offer if you are considering investing in a UK business, two of these could be:

• The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS)

These are venture capital schemes that encourage investment in companies not listed on the stock exchange.

Under the EIS scheme, investors could receive income tax relief at 30% of the amount invested up to £1m. If you invest in a qualifying start-up then you could also benefit from income tax relief of up to 50% of the amount you have invested (up to £100,000 of the investment) through the SEIS. This can be within the same tax year of the investment or carried back one year in some cases.

Under the EIS scheme, investors could receive income tax relief at 30% of the amount invested up to £1m. If you invest in a qualifying start up then you could also benefit from income tax relief of up to 50% of the amount you have invested (up to £100,000 of the investment) through the SEIS. This can be within the same tax year of the investment or carried back one year in some cases.

Both EIS and SEIS are highly technical areas of tax and so it’s always advisable to consult a qualified advisor to plan and implement investments.

• Capital Gains Tax relief

If you’re not connected to the EIS/SEIS company you’re investing in (for example an employee), then you will not likely be subject to Capital Gains Tax on the growth in value, so long as you hold the investment for at least a set period of time.

When disposing of any asset, if you decide to re-invest your gains into an EIS-qualifying investment, you will be able to defer your capital gain for as long as the investment qualifies, i.e. you have not sold it or it fails to meet the specified qualifying criteria.

Managing and passing on your wealth

Passing down wealth in an effective way remains a top priority for business owners planning for life post-exit, Inheritance tax and estate planning can help you with this.

When was the last time you looked at your will? It’s an essential aspect of estate planning. Ensuring that it’s kept up to date regularly will help you to capture any changing circumstances over the years.

It can also help to paint an accurate picture of your current circumstances and assets. From there you will be able to create an effective estate plan that reflects how you want your what you wish to be distributed on death.

Most things you own in your estate are likely to be exposed to Inheritance Tax. Assets such as cars, jewellery, savings, properties and investments could be liable to IHT, which are usually charged at 40% on the value of an estate above the Nil rate band (NRB threshold), which we will discuss below.

This could have a huge impact when it comes to passing on your wealth, so make sure you review your IHT position and exposure.

It’s important to be aware of any potential IHT exposure, which can happen particularly if you have received a lump sum from the sale of your business, gifts or you’ve inherited money or items after the death of a loved one.

It’s always worth consulting a qualified tax advisor when it comes to estate planning. This will give you peace of mind and a clear idea of your exposure, helping you to plan ahead.

Reviewing your IHT exposure

The NRB threshold is the total amount an estate can be worth before triggering an IHT charge. This amount has remained unchanged since 2009, meaning that with inflation factored in, more people could be paying IHT today than ever before.

There are many different factors which can have an impact upon your exposure. From gifting your assets to individuals and/or charities, to any available reliefs and exemptions.

Planning can be undertaken to reduce your exposure, such as lifetime gifts, or there is also the possibility of taking out an insurance policy to meet the estimated IHT liability. It’s always best to consult a qualified advisor who can assess your situation and help to tailor your plan accordingly.

Supporting you with your tax planning

Tax will always come into play when it comes to exiting your business. Ensuring you have a strategic tax plan in place ahead of your exit will help to place you in the most efficient position possible.

That's why our team of experts have crafted a comprehensive handbook for your exit plan strategy. Find out more today and speak to an expert today.