Deal With Credit Issues

Where a person transfers anything of value either on death or during his lifetime, Inheritance Tax (IHT) may be payable. This fact could have a dramatic impact on the way a business owner structures a family succession plan.

IHT law, like most tax laws, is complex and an understanding of its implications requires careful study. Business owners contemplating a family succession as an exit route should obtain early advice on IHT law from their tax advisors.

On death the transfer of an estate of a UK resident up to a certain value is tax-free.

For the tax year 2005/2006 the tax free amount is £275 000.

Transfers to your spouse of any property either in life or after death, if both spouses are resident in the UK, are also free of tax.

Gifts can be tax free if certain conditions are met. These conditions include that the transferor lives for seven years after making the gift, or that the gift does not exceed a certain (relatively small) value, or that the total value of gifts does not exceed a specified amount in any single year.

Besides the exemptions for transfers after death and for gifts made in life, there is also significant business property relief under the IHT legislation, which could be crucial for business owners wishing to dispose of their business assets to family members, either through a sale at less than arm’s length, or through a gift, or a combination of both.

Where are the greatest areas of risk relating to the most significant strategic decisions?

What are the potentially dislocating events that could inflict the greatest damage on your organisation? (The scenario planning techniques outlined in Chapter 6 are valuable for assessing this issue.)

What level of risk is acceptable for the company to bear?

What is the overall level of exposure to risk? Has this been assessed and is it being actively monitored?

What are the risks inherent in the organisation’s strategic decisions, and what is the organisation’s ability to reduce the
incidence and impact on the business?

What are the costs and benefits of operating effective riskmanagement controls?

Are the risks inherent in strategic decisions (such as acquiring a new business, developing a new product, or entering a new market) adequately understood?

At what level in the organisation are the risks understood and actively managed? Do people fully realise the potential
consequences of their actions, and are they equipped to understand, avoid, control or mitigate risk?

What review procedures are in place to monitor risks?

To what extent would the company be exposed if key staff left?

If there have been major new developments in the organisation (such as a new management structure or reporting arrangements), are the new responsibilities understood and accepted?