Business Trusts

What is a Business Trust?

A Business Trust is a legal arrangement that allows business assets, such as shares, properties, or intellectual property, to be held and managed by Trustees on behalf of Beneficiaries on your death. This structure can offer significant flexibility and protection for business owners, and in some cases ensuring the continuity of the business and safeguarding it against various risks. A Business Trust can operate for many years, providing a robust framework for managing and distributing assets according to your wishes.

It is important to note that any governing company documents will trump any wishes in a Will – it is therefore paramount that you check your governing company documents (for example, Articles of Association or Partnership Agreements). 

If business assets are sold for any reason, the proceeds are protected in the Business Trust for the beneficiaries. It is therefore still very beneficial to include a Business Trust. 

Business Trusts can safeguard your business assets, or their proceeds of sale, from claims during divorce or other personal legal matters involving Beneficiaries. For instance, if you leave shares or assets directly to a family member, they could become subject to division in a divorce settlement, potentially leading to a loss of up to half their value. With a Business Trust, assets remain outside of personal estates, making them far less vulnerable to such claims. This ensures the business you’ve worked hard to build continues to benefit the intended parties.

What is Business Relief?

Some businesses can qualify for Business Relief on death, providing the business meets the relevant criteria (set out below).  

Business Relief is an incredibly valuable tool that can reduce the amount of inheritance tax payable on your death.  If you want to guarantee the maximum amount of relief, it is crucial that your Will is set up to achieve this.  Without the correct planning, your estate could easily end up paying more inheritance tax than you thought, meaning your Beneficiaries are the ones who ultimately receive less. 

What is the relief, and what assets qualify?

If you are unsure whether your assets qualify for Business Relief, you should seek independent advice.  As a guide, the .gov website outlines the following: 

You can get 100% Business Relief on:

• a business or interest in a business
• shares in an unlisted company

You can get 50% Business Relief on:

• shares controlling more than 50% of the voting rights in a listed company
• land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled
• land, buildings or machinery used in the business and held in a trust that it has the right to benefit from

You can only get relief if the deceased owned the business or asset for at least 2 years before they died.

What doesn’t qualify for Business Relief?

You can’t claim Business Relief if the company:

• mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments
• is a not-for-profit organisation
• is being sold, unless the sale is to a company that will carry on the business and the estate will be paid mainly in shares of that company
• is being wound up, unless this is part of a process to allow the business of the company to carry on

You can’t claim Business Relief on an asset if it:

• also qualifies for Agricultural Relief
• wasn’t used mainly for business in the 2 years before it was either passed on as a gift or as part of the will
• isn’t needed for future use in the business

If part of a non-qualifying asset is used in the business, that part might qualify for Business Relief.

What does my Will need to do to maximise this relief?

In simple terms, your Will needs to direct the asset to a particular beneficiary.  This can be achieved in one of two ways:

Business Clause
A Business Clause will simply state who is to receive your business relievable assets.  The clause provides the relief to be applied your death, but it does not offer any ongoing protection.  

Business Trust 
A Business Trust enables you to ensure the relief can be obtained on death, but it goes beyond that. The Trust acts as a safeguard for your beneficiaries – inheritance can easily be lost to matters out of their control, such as the financial settlement element of a divorce.  This can often be half of the value, sometimes more. 

The business assets are ring-fenced, meaning that with good Trustee management, they are protected for your beneficiaries and the Business Relief can be applied on death.  

Reducing Tax Liabilities throughout generations 

Another key benefit of a Business Trust is its ability to reduce tax exposure throughout generations. When assets are held in trust, they remain outside the personal estates of the Beneficiaries, potentially avoiding double or even triple taxation as wealth passes through generations. 

A Business Trust can take full advantage of applicable reliefs, such as Business Relief, ensuring your business remains as tax-efficient as possible while continuing to support your family and successors.

How Can Kinherit Help?

At Kinherit, we specialise in creating tailored solutions to protect your business and legacy. Through careful planning, we assess whether a Business Trust aligns with your goals and recommend strategies that ensure your business assets are managed efficiently and securely.

Our expertise includes combining Business Trusts with other legal tools to maximise tax efficiency and meet your specific needs. Whether you’re looking to safeguard your company’s future, protect it from disputes, or create a robust succession plan, we’ll guide you through every step of the process.