Our Corporate Finance Partner, Steve Plaskitt shares his thoughts on our recent Pensions Update seminar…
Growing up in a family business, I am well aware that it is difficult to pass business/wealth to the next generation without diluting it or distributing it unfairly. I am very lucky as a second son of a second son as, under traditional methods where all the inheritance would pass to the oldest child, I may have had a very different upbringing. Thankfully, my Grandfather didn’t follow these rules and wanted to treat his offspring fairly.
These thoughts came to me after I attended the pension seminar run by Tait Walker Wealth Management last week hosted by Phil Griffin and Chris Hodgson. The seminar aimed to easily explain the new pension changes that are due out in December 2014, their taxation implications and how that also impacts retirement planning. And it did! For those who follow the right advice, private pension pots can now be regarded as a tax efficient savings account which may be passed from one generation to the next.
For a fleeting moment I was able to understand everything and, in particular, the impact that this change could have on planning succession in a family business. It may even be a way to address two difficult topics:
- How to pass the family business to the next generation without diluting the quality of its management
- How to try and treat offspring in a fair way when planning your will
For a simplistic example, consider the owner of a family business looking to plan for his retirement with a daughter involved in the business and a son who is not. Let’s also assume that the family business is worth £1m and the pension pot also worth £1m.
- Dividing the shares in the family company between the two is likely to create future problems for the business as the shareholders may have different goals and ambitions; for a start, the daughter is building up value for her brother who is not involved. And how would the family company be passed to the third generation? It is no wonder that many third generation family business owners decide to sell.
- The new rules allow the simpler and fairer way: give £1m of shares to the daughter and £1m of pension pot to the son.
Now of course, no family business is exactly the same and I have not yet come across the above situation, but I can clearly see that by allowing the value of pensions to be handed down to the next generation, the number of options available to the owner of a family business increase.
For those contemplating their retirement, a combination of corporate finance (pre-sale planning), wealth management and taxation advice could offer a fair solution that would be great for family harmony and for business.
To discuss the new pension changes, please contact a member of our Wealth Management team.