Securing your family business in the face of changing tax regulations: Why succession planning has never been more important

In light of recent tax changes, Julia Rosenbloom, private wealth tax partner at law firm Shakespeare Martineau, explores the critical importance of succession planning and how business owners can secure their legacy.

In today’s fast-evolving financial landscape, family business owners are facing increasing challenges to secure the future of their businesses.

However, our latest research has highlighted a concerning reality: less than half (only 47%) of family business owners 1 have started succession planning, despite the risks of leaving it too late.

With new tax changes announced in the 2024 budget, ensuring a solid succession plan is in place has never been more crucial.

As these changes could lead to higher tax liabilities and potentially jeopardise the financial stability of your business, it’s essential to understand how to protect your hard-earned legacy.

Effective succession planning can be the difference between a smooth transition and the erosion of a family business that’s been built over generations.

The impact of the 2024 budget

In October 2024, the new government announced several significant changes to the country’s tax policies, which are poised to directly affect family businesses.

Inheritance tax has always been a concern for family businesses, particularly when a substantial portion of the wealth is tied up in the business itself.

Once the new rules come into force in April 2026, the potential for increased tax liabilities upon the transfer of assets could lead to businesses being forced to sell parts of their operations or otherwise downsize to meet these tax obligations.

Capital gains tax also plays a major role in succession planning. Under the new regulations, family business owners may face higher rates, making it more expensive to transfer business assets to the next generation in their lifetime.

This could create significant financial strain on families looking to pass on the business, leaving them with fewer resources to ensure its continued success.

Key aspects of succession planning

Only 5% of family business owners plan to sell their business instead of passing it on to their
children.

While this indicates a strong desire to maintain family ownership, without proper planning, the transition could be fraught with tax challenges and leadership struggles.

As tax laws change, it’s crucial to reassess how you’ll handle the transfer of assets and leadership to ensure your business isn’t burdened by avoidable financial strain.

The new inheritance and capital gains tax regulations are likely to affect many family businesses.

However, with the right strategies in place, you can mitigate the impact of these changes. By working with tax and legal professionals, you can adopt a strategy that minimises tax liabilities while ensuring the smooth transfer of assets and leadership.

Estate planning is one of the first steps in this process. It involves structuring your business and personal assets in a way that reduces the potential tax impact on your estate.

You can explore options such as gifting portions of the business or setting up trusts to shield assets from higher taxes.

It’s also important to consider how business shares are structured, as this can have a major impact on your estate tax liability.

Wealth transfer strategies are another important area to focus on. In light of higher capital gains tax rates, it’s crucial to plan ahead for the transfer of business assets.

One option is to transfer a special class of shares to family members while also retaining control, which can help reduce the taxable value of the business.

Trusts and other estate planning vehicles can also be leveraged to ensure the business remains within the family while minimising taxes.

Preparing the next generation

A common pitfall in family businesses is the lack of communication between generations about the future of the business.

This can lead to misunderstandings, missed opportunities and even conflict that jeopardises the success of the business. Clear, open communication is essential to a successful transition.

Despite this, more than half (53%) of family business owners have promised their children they will inherit the company – yet acknowledge they could still change their mind.

This uncertainty can create challenges for the next generation, especially if there is no formal succession plan in place to ensure a smooth transition.

Equally important is educating the next generation about the company’s values, vision and operations; and establishing clear governance structures and decision-making processes to avoid confusion and ensure the business continues to run smoothly after the transition.

Looking ahead

Despite the challenges ahead, there is good news: 63% of family business owners trust their legal advisers to guide them through these complexities.

With careful planning in collaboration with trusted experts, business owners can develop robust succession plans that protect their companies for future generations.

If you’re looking for guidance on how to navigate these changes and secure your family business, view our succession planning webinar: https://tinyurl.com/shma-succession-planning.