As you make plans for your business, you identify and manage risks. As part of this you should plan for the risk of disruption to the business by the four ds – death, debt (tax), divorce or disability (incapacity).


If you died, who would step into your role in the business? Can plans be made now to identify and bring in that successor? If you are the sole director and shareholder, extra planning may need to be done so your executor can take control of the business after your death.

Writing your will allows you to take control of who that executor is, and who will inherit your shares in the business. You may want your business to go to your family or you may want the business to be sold, on the market or to someone else in the business. If you have chosen one family member as heir to the business, how will other members feel and how will their entitlement be provided for? This should all be set out by you and planned for.

What if your business partner died? You might want to have the option to buy them out. You could reach a prior written agreement on the mechanism for a buyout. Would you have the cash to buy out the shares – a trust arrangement can ensure cash can get into your hands at the right time to fund the purchase.

Debt (Tax)

Planning is needed for the payment of inheritance tax (IHT) at 40% on your death. You may have other assets to fund that, but if not your family and the business may have a cash flow issue and planning for that is needed.

Businesses can qualify for relief from IHT. This applies to businesses which are wholly or mainly trading, and not investing in land or assets. For example, a business which buys land and then sells it on is not trading and relief does not apply. A business which buys land and builds properties on it to sell is trading and should get the relief. For the mixed use business which does both trading and investing, analysis is required to find out whether it is mainly one or the other and in the case of doubt, parts of a business can be hived off to protect the rest from IHT. In making plans for diversification away from trading and into, for example, renting out surplus cottages on an estate for holiday lets, or renting land for a windfarm – the impact on IHT requires to be considered.

If you want to move assets down a generation then that should be done now as it may be the last opportunity to do so tax free. The tax reliefs for businesses passed on in death and during lifetime are currently generous. These tax reliefs have been under pressure and with government debt increasing, they may be under greater pressure.


What if you or another business owner divorced? That could disrupt the business as part may have to pass to their spouse or the owner may have to sell.

If you are taking someone into the business and passing that business down, the new owner will have ownership. The business is at risk of passing out of their hands to their spouse or cohabitant if they separate. This can be avoided by asking the recipient of the gift to first enter into a prenuptial or postnuptial agreement so that gift will be ring-fenced. If that is not palatable then ownership can be given to a family trust instead, giving the ring-fencing protection.

Disability (incapacity)

What if you became ill and unable to run your business? A power of attorney can be signed, naming someone to step in and look after things if you cannot do so yourself. This power extends to your shares in a business, but you cannot use the power of attorney to name someone to step into your shoes as director, and so planning for this role should be done within the business.

When making a business plan and managing risks, the risk of death, debt, divorce or disability should be planned for.

Our Personal & Family team at Brodies are able to assist with these matters.


Leigh Gould