“It is an ill wind that blows no good”, or so the saying goes. Although we should not belittle the significant damage to the economy and individual personal situations, there are also business opportunities arising from the current situation. This article briefly considers a few ideas which might be relevant depending on your circumstances.
Incorporation of a business
If a business is a sole trader or partnership there may be benefits of converting to a limited. However there can be barriers to incorporation which arise from high asset values or Income Tax charges on close of business. In the current situation profit levels and asset values may be low which could make incorporation more accessible.
Operating as a limited company can bring a number of advantages including:
- Creation of a tax free loan account which can be used to manage income levels and avoid higher rate taxes in the
- Accumulation of surplus income or necessary working capital in relatively low tax environment (Corporation Tax is just 19% compared with 45% top rate of Income Tax)
- Easier mechanisms for succession, redistribution of income and wealth.
The current low value of businesses may mean that share options are under water (the exercise price is higher than the current market value of the shares). In this situation it may be worth re-issuing options at the current low value. Equally this may be exactly the time to issue new share options to capture the current low values.
Introducing a personal or family investment company into a business structure may be easier at the moment with low share values. An investment company can be used as a low tax vehicle for accumulating surplus income from an incorporated business where the shareholders are unconnected and therefore don’t want their wealth retained in the trading company. It also provides a vehicle for redirecting income and wealth to other family members whilst retaining control, without creating a reservation of benefit. They can also be a useful and more tax efficient alternative to a discretionary trust.
Inheritance Tax planning
With asset values low at the moment it is a good time to consider whether this is an opportunity to move assets to the next generation or into trust to minimise future exposure to Inheritance Tax.
The current crisis has highlighted the financial risk associated with trading businesses. A simple group structure can segregate valuable assets from the inherent trade risk without undue complexity. Classically, a holding company is inserted above a trading company which can be achieved without any adverse tax implications.
Whatever changes you might be considering it is important that the arrangements are considered carefully to ensure there are no unexpected or adverse effects.
If you would like to discuss this article on business opportunities or your plans in more detail, please speak to your usual contact at Albert Goodman or contact me direct.