Family Business Trust

A Family Business Trust is a type of trust established for the purpose of holding and managing a family-owned business. This type of trust is typically used in estate planning to help ensure the smooth transfer of a business from one generation to the next, and to minimise any potential inheritance tax liabilities.

The Family Business Trust is established outside of the will, but is usually referenced in the will. The Business Clause in the will would make a specific reference to business assets that meet HMRC’s Business Property Relief (BPR) criteria.

One advantage of using a Family Business Trust is that it can help to protect the business from potential claims by creditors, as well as from any disputes that may arise between family members. By placing the business assets into a trust, the trustees are responsible for managing the business and making decisions on behalf of the beneficiaries.

Multiple Family Business Trusts may be required to be the most tax efficient, and each Trust would want to receive less than the IHT Nil Rate Band. This is because trusts that receive assets over the IHT Nil Rate Band are subject to inheritance tax at a rate of 20%, and the trust may also be subject to ongoing tax liabilities. Therefore, it is important to structure the trust in a way that minimises tax liabilities while still achieving the desired estate planning goals.