Business Succession Planning: Protecting Your Company in Your Will

For business owners, planning what happens to your company after your death is as crucial as any strategic decision you make during your lifetime. Without a comprehensive succession plan integrated into your will, your business could face operational disruption, family disputes, and substantial inheritance tax liabilities that threaten both the enterprise and your family’s financial security. Business succession planning ensures your legacy continues, your employees remain secure, and your loved ones benefit from the wealth you have built.

Understanding Business Assets in Your Estate

When structuring your will, identifying and valuing your business assets forms the foundation of effective succession planning. Your business interests are included in your estate for inheritance tax purposes, whether you own a sole proprietorship, partnership shares, or company stock. These assets require careful consideration because their value can be substantial, and their transfer complicated by operational considerations.

Business assets qualifying for special treatment include property and buildings used in the business, unlisted shares, machinery, and interests in partnerships. The manner in which you hold these assets affects both their valuation and the tax treatment they receive upon your death. Understanding what you own and how it integrates with your personal estate allows you to structure your will to minimise disruption and maximise the value passed to your beneficiaries.

Using Business Relief to Reduce Inheritance Tax

Business Relief represents one of the most valuable inheritance tax planning tools available to business owners. This relief reduces the value of qualifying business assets when calculating inheritance tax, potentially saving your estate hundreds of thousands of pounds. You can obtain 100% Business Relief on a business or interest in a business, and on shares in an unlisted company. For shares controlling more than 50% of voting rights in a listed company, or for land, buildings, and machinery used in a qualifying business, 50% relief applies.

To qualify for Business Relief, you must have owned the business or asset for at least two years before death. The relief does not apply if the company mainly deals with securities, stocks, shares, land, buildings, or investments, or if it operates as a not-for-profit organisation. Assets not used mainly for business in the two years before transfer, or not needed for future business use, also fail to qualify. Understanding what happens to a business when the owner dies is essential when drafting your Will to ensure your estate receives the maximum relief available.

It is important to note that recent changes announced for implementation from April 2026 will affect Business Relief. The first £1 million of combined agricultural and business property will continue to receive 100% relief, but assets above £1 million will receive only 50% relief. This change makes early succession planning even more critical for substantial business estates.

Appointing the Right Executors and Trustees

Selecting executors and trustees who understand business operations is crucial for maintaining continuity after your death. Your executors will manage your estate through probate, whilst trustees may hold business interests for beneficiaries who are not yet ready to assume control. These individuals need the capability to make informed decisions about business management, sale, or transfer whilst balancing the interests of all beneficiaries.

Consider appointing executors with business acumen or professional advisors familiar with your industry. Where business interests will be held in trust, trustees should understand corporate governance and have the authority under the trust deed to make operational decisions. Many business owners appoint professional trustees alongside family members to provide expertise whilst maintaining family involvement. The articles of association and any shareholders’ agreement should be reviewed to ensure they permit executors and trustees to exercise voting rights and management powers during the transition period.

Structuring Trusts for Business Continuity

Trusts offer flexibility in managing business succession, particularly when beneficiaries are minors, lack business experience, or when you wish to provide income whilst retaining capital in the business. A discretionary trust allows trustees to distribute income and capital according to changing circumstances, which can be valuable if business performance fluctuates or family needs change. Alternatively, you might settle your shareholding into a life interest trust, giving one beneficiary income whilst preserving capital for others.

Trusts can also facilitate a gradual transition of control. By placing shares in trust with provisions for beneficiaries to assume ownership over time, you create a structured handover that allows successors to develop necessary skills. This approach is particularly valuable in family businesses where the next generation needs time to demonstrate capability. The trust structure should align with your company’s articles of association to ensure trustees have appropriate powers to manage the business or facilitate its sale.

Identifying and Preparing Successors

Successful succession planning requires identifying who will lead your business and preparing them for that responsibility. Whether you plan to pass the business to family members, key employees, or arrange for its sale, your will should reflect these intentions clearly. For family succession, assess whether potential successors have the interest, capability, and commitment to run the business. Not all children wish to continue the family business, and forcing succession upon unwilling or unsuitable heirs can destroy both relationships and enterprise value.

If family succession is not viable, consider alternative arrangements such as management buyouts, where key employees purchase the business, or a sale to a third party. Your Will can include provisions that give certain individuals the right to purchase the business at a fair value, or instructions for executors to seek buyers. If you wish the business to benefit employees broadly, an Employee Ownership Trust can be structured, though this typically requires implementation during your lifetime. Clear documentation of your intentions prevents disputes and ensures executors understand how to proceed.

Creating Governance Documents to Prevent Disputes

Shareholders’ agreements and updated articles of association are essential tools for preventing disputes after your death. These documents should specify what happens to shares upon death, whether they can be transferred to beneficiaries or must be offered to surviving shareholders. Without clear provisions, your shares may pass to family members who then find themselves in conflict with business partners over management direction or dividend policy.

Cross-option agreements backed by life insurance provide certainty for all parties. Under these arrangements, surviving shareholders have the option to purchase shares from your estate, whilst your estate has the option to require them to buy. Life insurance ensures funds are available to complete the purchase without depleting business capital. These mechanisms protect both business continuity and family financial security by providing liquidity when needed.

Managing Family Expectations and Potential Conflicts

Business succession often involves complex family dynamics, particularly when some children are active in the business whilst others are not. Your Will must balance fairness with business continuity, which may mean unequal inheritance if some beneficiaries receive business interests whilst others receive different assets. Clear communication during your lifetime about your succession intentions helps manage expectations and reduces the likelihood of Will challenges.

Consider whether beneficiaries who are not involved in the business should receive shares or alternative assets of equivalent value. Forcing inactive family members to become shareholders can lead to deadlock and disputes over management decisions. Some business owners use life insurance proceeds or other assets to equalise inheritance whilst keeping business ownership concentrated in the hands of those who will actively manage it. Document your reasoning to help executors and courts understand your intentions if disputes arise.

Ensuring Business Continuity During Transition

The period immediately following your death is critical for business continuity. Your Will should include provisions that authorise executors or trustees to continue business operations whilst probate is obtained. Without explicit authority, there may be uncertainty about who can make binding decisions, approve expenditure, or sign contracts. This uncertainty can paralyse operations and damage customer and supplier relationships.

Consider creating a letter of wishes alongside your Will that provides executors with practical guidance about business operations, key contacts, and immediate priorities. Whilst not legally binding, this document helps those managing your estate understand business needs and maintain relationships during the transition. Ensure key employees, professional advisors, and business partners know where to find important documents and who to contact if you become incapacitated or die.

Professional Valuation and Tax Planning

Obtaining a professional valuation of your business interests is essential for both inheritance tax planning and preventing disputes. Valuations determine the relief available under Business Relief rules and establish a baseline for any purchase by co-owners or family buyouts. Without an objective valuation, beneficiaries may dispute the value assigned to business interests, particularly if some receive the business whilst others receive fixed assets.

Work with accountants and solicitors who specialise in business succession to structure your affairs tax-efficiently. This may involve reorganising shareholdings, creating trust structures, or implementing lifetime gifts that qualify for holdover relief. Business Relief itself is claimed by executors when valuing your estate using form IHT400 and schedule IHT413, so your will should clearly identify which assets qualify for relief. Early planning allows you to address issues that might disqualify assets from relief, such as ensuring property is used in the business for the required two-year period.

Regular Review and Updates

Business succession planning is not a one-time exercise but requires regular review as circumstances change. Alterations in business structure, family situations, tax legislation, or shareholder composition may require updates to your will and related documents. The changes to Business Relief taking effect in 2026 exemplify why periodic review is essential. Without updates, your carefully crafted plan may fail to achieve your objectives or create unintended consequences.

Schedule regular reviews with your solicitor, particularly after significant business events such as acquisitions, new partnerships, or changes in company structure. Family changes, including marriages, births, divorces, or death, also necessitate will reviews. By maintaining current documentation, you ensure your business succession plan continues to protect both your enterprise and your family’s future.

Taking Action Now

Business succession planning protects everything you have built and ensures your family benefits from your life’s work. The combination of a well-structured will, appropriate use of Business Relief, carefully selected executors and trustees, and clear governance documents creates a framework for smooth transition. Without this planning, your business may face disruption, your family unnecessary tax burdens, and your legacy uncertainty.

Contact A L Law today to discuss your business succession planning needs. Our experienced team will help you structure your will and related documents to protect your business, minimise inheritance tax, and secure your family’s financial future. Do not leave your life’s work to chance—plan for continuity now.