Holding shares in a company can amount to a sizeable asset, especially when you’re planning what will happen to your estate after you die. Depending on the way the business is structured will impact on how your assets are handled so it’s sensible to consider what you might need to do for inheritance purposes.
Generally your company assets are included in your estate after death and will be distributed according to your Will or the rules of intestacy. The exact detail comes down to how the business is structured and whether you are a sole trader, partnership or limited company. Dealing with business assets after a death can involve a complex probate process, and the potential of Inheritance Tax, so understanding the detail is vital.
Understand your business structure
Sole Trader: if you act as a sole trader it’s important to understand that your business finances and personal finances are not separated, so any business assets and debts automatically become part of your estate.
Limited Company: if you are a director with shares in a limited business, these shares form part of your estate. Typically the company’s articles of association or any shareholder agreements will govern what can be done with the shares. For example, these company documents may require that the shares are offered to existing shareholders first.
Partnership: any interest which you hold in a partnership becomes part of your estate. A partnership agreement, if one exists, will help determine how the partnership is managed after death.
What happens to any company assets?
Your executors must obtain a Grant of Probate to deal with any business assets you hold, which can make the probate process longer and more complicated. Once they have this any assets which your estate holds can be distributed to your beneficiaries according to your Will (or the rules of intestacy if you die without a Will in place). There could be several options for your executors and beneficiaries at this stage. These include selling the shares or the business, continuing to trade, or closing the company down.
Will Inheritance Tax be charged?
Your business assets may be eligible for Business Relief, which reduces the value of the business or its assets for Inheritance Tax. Specialist advice from your accountant can be helpful here.
Should I seek professional help?
Dealing with business assets when you’re a shareholder can be complicated. Working with specialists can help manage the legalities and complexity of the process. A shareholders’ agreement can also be useful – specifying what happens to any assets you hold in a business in the event of death.