Tax planning for your practice... - Veterinary Practice
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Tax planning for your practice…

explains ‘business property relief’ and how it can be used to aid in succession planning and also to help reduce the amount of inheritance tax payable

INHERITANCE tax is payable at a
flat rate of 40% after the
exemptions allowable and any
reliefs that may apply. A generous
form of relief that owners of a
business may or may not be aware
of is that certain forms of
qualify for
relief”, a
form of
relief from

There are two rates of relief
available: 100% and 50%. Generally
speaking, the 100% rate is available on
your interest in the business itself and
the 50% relief available on assets used
in the business such as land that is
owned by the individual but used by
the business (provided the business is a
qualifying one).

Despite more than 75% of family
business owners believing the same
family will be controlling the business
in five years time, figures suggest that
only around one third of family
businesses actually make it to the second generation and just over 10%
pass on to the third.

A variety of reasons are responsible
for this, from not wanting to face the
inevitable or the inability to find a
willing recipient. With this in mind,
planning for the succession of a business cannot start too early and is
an area that senior management should
be seriously considering when
contemplating their longer term plans.

Often the cornerstone to an
individual’s personal planning will be a
will. A will is something many people
want to put off as they feel it is signing
their own death warrant. However a
well-planned will can not only stop
family feuds and bust-ups but can also
help save inheritance tax.

Business property relief is available
on certain forms of business. In the
main, it is not available to those
businesses that are wholly or mainly
dealing in securities, stocks, shares or
land or buildings or in the making of
investments. An example of a business
that would not qualify is a commercial
property letting business.

“Qualifying” businesses include those that are not listed in any
recognised stock exchange but do
include shares held in the Alternative
Investment Market (AIM) and
Enterprise Investment Schemes (EIS).

A family business that is not
structured so as to gain the maximum
benefits from business property relief
will not only face a potentially large
inheritance tax bill, but put at risk the
staff and employees if the only way to
settle the tax bill is to sell the business.
This is clearly a situation many
business owners wish to avoid.

Conditions to adhere to

On the assumption your veterinary
practice is qualifying, one must ensure
the basic conditions are adhered to in
order to qualify.

The business must not be subject
to a binding contract for sale – often
this can be a trap that is easily fallen
into. For example, many businesses
have shareholder agreements or
partnership agreements that are drafted
in such a way so that on the death of
one of the owners the business interest
of that owner automatically passes to
the other owners.

This type of condition would mean the business is subject to a binding
contract for sale and would therefore
not qualify for the relief. It is a
common problem but one that can
easily be resolved.

You must pass the ownership test –
broadly speaking, but there are some
quirks: you must own the business for
two years or more at the date of your

There are lots of traps and pitfalls
that one needs to be wary of and these
can be easily overlooked by those
inexperienced with dealing in such
matters. However, with careful
planning many of these issues can be
successfully overcome.

As a result, it is incredibly
important to regularly review your
business and to check its eligibility for
relief. A business that may start as one
thing may turn into another and
could, due to its change in nature, fail
to satisfy the criteria. It is therefore
prudent to remain proactive in one’s
approach to such matters.

Carefully considered planning
could not only ensure the future
succession of a family-run business
but also save a vast sum of tax at the
same time.

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