Coronavirus: Five personal planning tips for business owners

The impact of the coronavirus pandemic on businesses is unprecedented. Business owners are rightfully focusing on putting important measures in place to protect their businesses and their people. However, it is equally important to think about YOU, the business owner.

Given the current uncertainty, now is a good opportunity to review and protect your own finances. We’ve teamed up with Gary Smith from Tilney Financial Planning to highlight five key areas of personal planning you should consider as a business owner.

Safeguard your estate

Drafting or reviewing your own will can be a nerve-wrecking experience. It’s something that people put-off doing and for many it never seems to leave the ‘to do’ list. However, it is an incredibly important document that can save your family a lot of stress and heartache.

When someone dies without a will, their estate is divided up according to standard rules, known as intestacy law. The rules will allocate your estate to your family members in a strict order, depending on which relatives you leave behind.

Dying without a will may inadvertently disinherit the people closest to you. The key individuals who the intestacy rules effect include: unmarried couples, married couples with children that have an estate valued at more than £270,000, step-children or foster children, and couples who have remarried.

For peace of mind that your personal assets/affairs will be dealt with when you’re unable to, we also recommend considering a lasting power of attorney (LPA). An LPA is a legal document that lets you (the ‘donor’) appoint one or more people (known as ‘attorneys’) to help you make decisions or to make decisions on your behalf. This gives you more control over what happens to you if you have an accident/illness and are unable to make your own decisions. They can be created for the purpose of making medical decisions and dealing with your financial affairs.

Review your inheritance tax (IHT) position

Reviewing your IHT position often goes hand-in-hand with writing or updating a will. Forward planning can mitigate and often remove IHT liability - thus protecting the value of the assets you pass on to your loved ones - but only if you act early. There are a number of ways you can lessen the impact of IHT:

• Gifting assets – Certain gifts made during your lifetime are exempt from IHT, these include those to a spouse, wedding gifts, and regular gifts out of income. By donating 10% of your death estate to charity, you can also reduce the overall percentage of tax charged on your death whilst giving money to a good cause. As a general rule, most gifts made more than seven years before death will escape tax.
• Business Property Relief - As a business owner, the shares you hold in a company may qualify for 100% Business Relief providing you’ve held them for a minimum of two years at the date of death. This means that the share’s value is then free from IHT.
• Family Investment Companies (FICs) – FICs are a planning vehicle which enable parents to retain control over assets whilst accumulating wealth in a tax efficient environment to facilitate succession planning.
• Transferring assets to a trust - Trusts can also be used in your will to protect your wealth for future generations. If you start making gifts during your lifetime but you don’t want to make them direct to family members (i.e. they are too young) the gift could be made to a Trust.

Seeking professional advice is a wise investment when looking to minimise inheritance tax as the rules can often be very complex.

Protect what you’ve built up

How will your business cope if you or your business partner are not around? How would your family cope without your earnings? How will your business loans be repaid if you lose a key member of staff? By putting in place life insurance, critical illness and/or income protection, you can not only ensure the continuity of your business, but also protect its value for your family’s well-being.

Having Powers of Attorney (POA) in place for your business is also vital. Especially if decisions have to be taken where one of the business owners is incapacitated. You should also review your existing articles of association to understand what would happen to share capital on the death of one or more of the shareholders; it is not always the case that your family will inherit the shares on death.

Make your cash work harder

With the Bank of England base rate at an all-time low, the future for business savings is bleak. Shopping around for better rates is hugely important, but often the last thing on a business owner’s mind – especially now. In order to access potentially better rates, banks will often want you to move all of your business banking at the same time, something you might prefer to avoid in the current climate.

However, by using a cash management system you can shop around in one location. This means you have one account that gives you access to a number of other accounts, without having to move existing business banking arrangements. So with a sum of £250,000 and instant access rates on offer of around 1.4%, you could net yourself an extra £3,500 a year, whilst maximising financial services compensation scheme (FSCS) coverage, currently £85,000 per bank, at a click of a button.

Manage your pension contributions

For many, pension contributions will take a backseat during this period of crisis. That said, with reliefs of up to 60% on personal contributions and potential Corporation Tax relief on employer contributions, they are still worthwhile if your cash flow will allow it.

As a result of tax relief on personal contributions, you can turbo charge returns when the recovery does come, which it will. If you contribute £10,000 into a pension, due to basic rate tax relief, £2,500 will be added to your pension and, if this makes a 10% return in the next 12-months, the value would increase to £13,750, representing an effective return of 37.5% on the £10,000 payment. Review your pension investments and your level of investment risk.

Markets are down, which can signal a ‘buying opportunity’. Whilst there are no guarantees, with at least a medium term view, there is opportunity for growth. Even an unlucky investor, investing in the UK markets at the peak before the global recession in 2008 would have made 30% total return over five years – despite initially falling in value by almost 50%. If you are having difficulties maintaining workplace pension commitments, contact The Pensions Regulator, to see if they will grant any flexibility in payments during this period of uncertainty.

In summary…

1. Ensure you have an up-to-date will in place
2. Review your inheritance tax position
3. Protect what you've built up
4. Make your cash work harder
5. Manage your pension contributions

The coronavirus pandemic is impacting all of us in one way or another. The following weeks and months will be challenging for business owners, but it’s important that you have the measures in place to protect your own finances and ensure peace of mind for your loved ones. As always, we are here to talk and offer support and counsel in whatever way we can. Get in touch here or go direct to your Relationship Partner for help and advice.