What Makes Family Tax Planning Different?



Posted: Wednesday, February 08, 2012

by Liz Fletcher
University of Southampton

If your family runs a business, it may interest you to know about the many tax options available to help you and your family avoid paying more tax than is necessary.

Tax and accounting professionals often view family company tax planning differently to non family company tax planning. With family company tax planning there are many different dynamics at work, which are not relevant to non family company tax planning.

For instance: a lot of family-owned companies prefer to switch their business model to a partnership. This is because companies and partnerships have tax liabilities that arise in different ways.

When it comes to remuneration: any family business must decide whether it is more tax efficient to pay salaries, or to pay dividends instead, to those who work within the enterprise. Therefore, it is vital to know which remuneration model offers the most tax efficiency.

Family company tax planning is especially relevant if, or indeed when, the family firm is handed down to the younger members of the family.

When a business is passed down on death, those who inherit the company and its assets will be charged inheritance tax. Fortunately for them, they can benefit from the tax relief offered under the business property relief provision for inheritance tax.

But, if the business and its assets are transferred during the life of the donor, it becomes progressively immune from inheritance tax, eventually becoming completely exempt after seven years.

Hampshire accountancy firm manager Peter Lashmar said: “Family company tax planning throws up many different options. What suits one family business will not necessarily suit another one.

“Any person who is worried or unsure about family company tax planning ought to contact an independent accounting professional for advice.” He added.

You can discover more about family tax planning, as well as many other types of tax planning, by contacting Lashmars: www.lashmars.co.uk
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