Lewis Surtees Tax Adviser

What is succession planning?

Snapshot Summary

Succession planning is a business strategy designed to ensure smooth transitions when key leadership exit the business. It prepares future leaders, protects assets, and allows businesses to continue operating efficiently. Surprisingly, 3 out of 5 small to medium-sized businesses lack a succession plan. Effective planning can reduce tax liabilities through gifting, trusts, and reliefs. Starting succession planning early helps ensure a smoother wealth transfer and better tax management.


A succession plan is a business strategy which ensures that the correct people and processes are put in place for the day that key leadership moves on to new opportunities, decides to retire, or passes away. It is important to ensure that people are prepared for future roles to ensure that the business can continue operating and growing.

It is also to ensure that there is a plan in place to protect your assets and ensure that these are being passed on to the next generation in the most controlled way. There is a surprising number of businesses that don’t have a succession plan in place, 3 out of 5 small to medium sized businesses have no succession plan in place. If this is you, we recommend putting a succession plan in place as soon as possible.

Why is succession planning important?

Having a robust succession plan in place means that your business can continue to run smoothly, but also allows you to pass on your assets. Many people don’t make these kinds of considerations until later in life, however a much more proactive approach to succession planning can result in significant advantages such as:

  • Allows businesses time to prepare for the change – ensures continuity of operations and leadership
  • Tax efficiency – Helps to mitigate or reduce inheritance tax liabilities which ensures that more of your wealth is passed on
  • Adaptability – Keeping your succession plan up to date ensures it can evolve with changing family circumstances, financial conditions and tax changes.
What is inheritance tax (IHT) and what are the implications?

A common concern when planning for succession is mitigating the impact of IHT. For business owners, ensuring that your assets are going to be passed on to the people and places that you intend is key. Some assets do in fact qualify for exemption from IHT, and some do not. IHT applies to estates valued over £325,000 with a standard rate of 40%. Effective succession planning aims to reduce this tax burden, this can be done by gifting, trusts and utilising the relevant reliefs.

What are the thresholds and relief for IHT?
  • Nil rate band - Everyone has an IHT nil rate band allowance of £325,000 (which is doubled up for a married couple). 
  • Residence nil-rate band – If you leave your main residence/home to direct descendants, additional exemptions apply which increases the threshold of potential exemption to £500,000.
  • Annual gifting allowance – Up to £3000 can be gifted annually without IHT implications.
  • Seven-year rule – Any gifts that are made 7 years before death are typically exempt from IHT, with taper relief reducing tax liabilities on gifts made within this period. 
Why is it important to implement your succession plan whilst in sound mind?

Passing on your assets whilst still in sound mind and at the right stage of life can help to ensure a much more efficient transfer of wealth, assets and business interests. It also enables you to make considered decisions. Passing on your assets to help to reduce inheritance tax whilst you are alive still requires careful financial and tax planning. It is important that you work out how much you can afford to give away whilst still ensuring that you have enough to meet your own needs.

When do I need to start worrying about IHT?

Depending on the IHT planning strategies adopted you might be faced with a 7 year wait or even longer before you can be sure of avoiding an IHT liability on your estate. The earlier you seek advice the better; we recommend you don’t leave it any later than middle age (late 40s/early 50s). Of course, the worst can happen to anybody at any time, so a succession plan is critical for anyone.

Should I have a trust as part of my succession plan and IHT planning?

Individuals may consider setting up trusts or making large lifetime gifts in order to benefit their children or grandchildren.

Utilising trusts in the correct way can give opportunities to pass wealth down from one generation to another without losing control, and also give rise to options to extract profits and cash from your company tax efficiently to support family needs as they go through life. 

SUMMARY
The bottom line is, there is no substitute for good advice – and if you are in your 50s or older, the sooner the better to ensure you are putting strategies in place.  If you feel you would benefit from an assessment of your IHT position and estate planning options, and succession planning feel free to get in touch and we will be glad to help.

Please note: This article is provided for information only and was correct as at time of writing (03/10/24). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance.  No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.