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Succession Planning

Importance of taking account of CGT in assessing the level of critical illness assurance cover for share purchase assurance.

CGT has little or no impact on assessing the level of life cover required in a business share purchase arrangement under which the share in the business will be bought at open market value shortly after the death of the business owner. There will be a revaluation on death (usually at open market value) and then a sale at that value some time after death will give rise to no capital gain.

If the price specified in the agreement is different to the open market value on death then sale could give rise to a capital gain or loss. Self evidently, a sale following critical illness will not have followed a revaluation on death. The disposal of a business share will thus potentially give rise to a capital gain and CGT.

Entrepreneur´s relief will be available (subject to the satisfaction of the normal conditions) which will result in a 10% rate being applied up to a lifetime limit (for the disposer) of £1m. Gains over this will be subject to a flat CGT rate of 18%.

This means that the proceeds of sale will be accordingly diminished.

If business succession planning is to yield a "target" sum on sale following an owner´s critical illness, in arriving at the level of critical illness cover to deliver it there will be a need to take account of expected CGT. The most efficient way to do this would be for each of the owners who are party to the agreement to:

insure for the anticipated purchase price with the policy being typically held subject to a business trust and
to effect a separate own life own benefit policy with a sum insured sufficient to meet the anticipated CGT liability on sale.

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	News News \| Newsletters \| Subscribe Succession Planning Importance of taking account of CGT in assessing the level of critical illness assurance cover for share purchase assurance. CGT has little or no impact on assessing the level of life cover required in a business share purchase arrangement under which the share in the business will be bought at open market value shortly after the death of the business owner. There will be a revaluation on death (usually at open market value) and then a sale at that value some time after death will give rise to no capital gain. If the price specified in the agreement is different to the open market value on death then sale could give rise to a capital gain or loss. Self evidently, a sale following critical illness will not have followed a revaluation on death. The disposal of a business share will thus potentially give rise to a capital gain and CGT. Entrepreneur´s relief will be available (subject to the satisfaction of the normal conditions) which will result in a 10% rate being applied up to a lifetime limit (for the disposer) of £1m. Gains over this will be subject to a flat CGT rate of 18%. This means that the proceeds of sale will be accordingly diminished. If business succession planning is to yield a "target" sum on sale following an owner´s critical illness, in arriving at the level of critical illness cover to deliver it there will be a need to take account of expected CGT. The most efficient way to do this would be for each of the owners who are party to the agreement to: insure for the anticipated purchase price with the policy being typically held subject to a business trust and to effect a separate own life own benefit policy with a sum insured sufficient to meet the anticipated CGT liability on sale. Call us today on 0845 330 3200 to discuss this article... DWP Confirm Protected Rights Can Be Held By All SIPPS from October 2008 Fuel duty rise is postponed

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