Question

After years of managing my own successful business the time has now come to sell and retire. The sale is expected to net a considerable amount of cash and I would like to leave a significant proportion to some kind of philanthropic undertaking. Would I be better establishing my own venture of investing in one of the many programmes that already exist?

Answer

It is always sensible to take succession planning advice well in advance of any sale of the business as using available tax reliefs can bring significant tax benefits. For example, shares in unquoted trading private companies generally attract 100% Inheritance Tax relief. You could therefore consider transferring some of your shares into a trust for the family while they qualify for relief. Once the sale has completed and you hold cash, no Inheritance Tax relief will be available and the cash could suffer an Inheritance Tax charge at 40% on the death, so advance planning is important.

You should also consider the extent to which you may be able to access the 10% rate of Capital Gains Tax by claiming Entrepreneur's Relief when the business is sold, up to your lifetime threshold of £10m. If your spouse works in the business it may also be possible take advantage of their £10m lifetime allowance.

There are also many ways to transfer shares or indeed some of the liquid wealth that you have created to a charity tax efficiently, so taking advice well in advance of retirement should not be underestimated. It is relatively straightforward to establish a private charitable foundation and the charity can initially be funded with a small sum. You could continue to have a role as a trustee of that charity, perhaps with members of your family also sitting on the board, which offers them an opportunity to become involved in a family project together and can prove very unifying.

The Government is due to put in place new income tax relief and capital gains tax deferral reliefs from 6 April 2014 as "Social Investment Tax Relief" providing tax incentives to invest in social enterprises, which may also be of interest if you trigger a large capital gain as a result of the sale of your business.

This article by Hayden Bailey first appeared in the Financial Times on 22 February 2014.