We know that tax is important to you – and you know that the way your business is structured can have a massive impact on your tax bills; both the annual tax on profits and the future tax when you sell your business or pass it on to the next generation.
That said, it is essential that the way your business is structured doesn’t hamstring you with regard to the day-to-day management and the on-going financial requirements of all concerned.
It is too easy to take steps which may seem to be the perfect solution now, but you will later come to regret. It is not only the tax aspects that have to be considered but the future of all involved. Often that includes family members who take no part in the business but have to be provided for in some way, possibly by an allocation of capital or a share of income, perhaps a payment of rent or a “rent equivalent” amount.
What is important is that you also take care to ensure that the financial futures of those who rely on the business – including mum and dad in their retirement – are protected and that there are no tax traps that may cause problems in the future.
If you are a sole trader, should you take family members into partnership?
If so, should the partnership include the farm or only the trading activity and assets, with the farm retained by you?
If you are trading in a partnership, should you convert to a Limited Liability Partnership (LLP)?
In any of those cases, should you be thinking about incorporating – that is, transferring it into a limited company? If so, how and which of the assets and liabilities of the business should be included in the incorporation?
Whatever your current situation, you should very carefully consider all aspects of any changes to the business ownership and structure. As an example, Stamp Duty Land Tax is a common trap that catches the unwary, but may be avoided by careful planning.