By Daniel Hunter
Almost half of British small business owners plan to pass on their business to their children once they retire, according to the latest research from Close Brothers Asset Management.
The independent survey of 837 employers found that 63% of SME owners aim to pass their business on to a family member when they retire, with 48% intending to hand the business down to their children. Over one in ten is preparing to pass their businesses onto their spouse.
However, the likelihood of an owner being succeeded by their children varied by industry. Those in the transport industry were most likely to pass on their business to the next generation, with three quarters (75%) stating this. Those in the wholesale and distribution industry are least likely to pass on their business, with 43% stating the same - below the national average.
Despite many owners planning to pass their business to the next generation, a significant proportion of small business owners don’t have any plans for their succession in place at all, with over one in ten (13%) admitting they haven’t thought about this yet. This increases amongst business owners in the construction industry as over a quarter (26%) admitted to not thinking about plans for succession.
Patrick Haines, Regional Head of Advice at Close Brothers Asset Management, commented: “SMEs are the building blocks of the economy, and their longevity is crucial. Many are already multi-generation family businesses, but whether a company is newly formed, or centuries old, it’s encouraging that the majority of SME owners plan to protect their business and its heritage, preparing children or family members to take over at the helm.
"We already know that only a third of family business make it to the second generation and succession can be a complicated process. There are tax implications of passing businesses to the next generation that business owners need to be aware of - whether capital gains tax, or inheritance tax — and beneficial reliefs like entrepreneur’s relief or CGT Hold-over. ”
However, although people are looking at succession planning there are many that aren’t looking at the tax implications that come with their retirement. The research revealed that well over four in ten (45%) SME business owners don’t have plans in place to cope with the tax implications of extracting profit from their business when they retire. Furthermore, 8% had no understanding at all of the tax implications of taking profit from the business.
The lack of tax planning is more acute in smaller firms. For those businesses earning a turnover of between £750k and £1m, the majority of owners admit to not having put any plans in place (52%). In comparison, 83% of owners of businesses with a turnover or £5m or more fully understand the tax implications.
Patrick Haines continued: “Business owners need to ensure they have the relevant plans in place to maximise profit from their business when they retire to help fund their retirement. The hard work that goes into setting up and running a business can be lost if proper planning isn’t in position when approaching retirement. This can be simple if business owners seek the right guidance early, placing them in a stronger position to protect their wealth.”
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