Handing your business to the next generation can secure its future and your legacy, but it rarely goes smoothly by accident.
Successful family succession needs careful planning around both the numbers and the people involved, often over many years.
Based on our experience of working with family businesses here are some of our tips for those preparing to transition.
Before any tax planning, establish whether your children genuinely want to take over and have the ability to do so.
Assumptions on either side can cause serious problems later and it isn’t uncommon for parents to assume the next generation want to take over, without consulting them fully.
It is important to be clear with them about the responsibility involved and treat them like any other acquirer.
Agree a realistic timetable and be clear about what your role will be once the handover is complete.
Fairness is often the hardest issue and treating children fairly does not always mean treating them equally, particularly where one works in the business and others do not.
Non-active family members might receive other assets or hold non-voting shares, leaving control with those who run the company.
Successors who have earned their place command far more respect from staff, customers and lenders.
Many families encourage the next generation to gain experience elsewhere first, then to work through different parts of the business rather than stepping straight into a senior role.
A structured handover, with responsibilities transferred in stages, allows them to build confidence while you are still on hand to help.
External leadership training and a mentor from outside the family can both speed up the process.
Few successors can run a business alone and the strength of the wider management team matters to everyone from the bank to key customers.
Identify the people the business relies on and think about how to keep them.
Senior non-family managers can feel overlooked when ownership passes to the next generation, so clear roles and reporting lines are essential.
Share incentives, such as Enterprise Management Incentive (EMI) options, can give key staff a stake in the company’s future and encourage them to stay through the transition.
Some families also appoint a non-executive director or independent chair to bring experience and objectivity into the running of the company and to act as an unofficial arbiter, where there is disagreement.
Gifting shares is treated as a disposal at market value for capital gains tax (CGT), but gift holdover relief can usually defer the gain until your successor eventually sells.
If they pay you something for the shares, the position becomes more complex and part of the gain may be taxable straight away.
For inheritance tax (IHT), 100 per cent Business Property Relief (BPR)applies to the first £2.5 million of combined qualifying business and agricultural property, with 50 per cent relief above that, resulting in an effective IHT rate of 20 per cent.
Lifetime gifts generally fall outside your estate if you survive seven years.
Since April 2026, IHT on any property qualifying for business relief can also be paid in ten equal annual instalments, interest-free.
Gradual transfers can help too. Issuing a new class of growth shares to the next generation, for example, allows future increases in value to build up in their hands rather than in your estate.
Whatever approach, it is important to seek tax planning advice before any action to hand the business over takes place.
Under Scots law, a spouse and children are entitled to legal rights over part of the moveable estate on death, whatever a Will says.
Company shares and partnership interests count as moveable property, so leaving the business to one child could allow siblings to claim a share of its value.
Without planning, executors may need to raise funds to meet those claims, putting pressure on the business itself.
Up-to-date Wills, powers of attorney, a shareholders’ agreement and articles of association that reflect the new ownership should all be in place well before the handover.
Passing on the business should not leave you short. So, if you need an income, options include a phased sale, deferred payments funded from future profits, a company purchase of your own shares or keeping the business premises and charging rent.
Each carries different tax consequences and needs careful structuring.
Succession is a process rather than a single event and Scholes can help you plan the structure and tax implications of passing on your business, working alongside your solicitor to make sure everything fits together.
To start the conversation, get in touch with your usual Scholes contact.
