Each month Thomson Snell & Passmore will be giving advice to Kent-based business MexxaMixx which manufactures and sells a range of Mexican style cooking sauces.
MexxaMixx is run by two brothers, Steven and Thomas. After a recent divorce, Steven decides he wants to 'cash in' on MexxaMixx so both directors seek legal on how to exit him from the company from Thomson Snell & Passmore. They recommend the most efficient way is for MexxaMixx to buy back Steven's shares within company.
However, shortly before MexxaMixx buy back the brother’s shares, they are approached by a major competitor who wants to buy the entire issued share capital. Both brothers are in agreement that the price and timing is right and the sale proceeds. They approach us for advice about what they should do with their lump sums from a tax and estate planning perspective.
Each brother is unique and they will each require a personal plan based upon their own circumstances. We would tailor our advice to each individual.
We would ensure that the brothers have Wills in place. It is important to have a Will to safeguard what happens to the brothers’ assets when they die.
In terms of investments, we would advise that diversification is important. The brothers might choose to invest in cash, shares, bonds, commodities or property. They would need to consider carefully whether to invest in high or low risk investments. We could point the brothers in the direction of an Independent Financial Advisor to help choose the most appropriate investments.
We would advise the brothers to put some money into tax-free savings and investments, such as ISAs and Personal Pension Schemes. It should be remembered that if money is put into Personal Pensions then it cannot be withdrawn until an individual is at least 55 years old.
The brothers may wish to consider Business Property Relief. They could invest in discretionary management services that provide investment into unquoted companies, which are exempt from IHT after 2 years. The brothers may also consider using trusts. They could gift an amount up to the nil rate band of £325,000 per person into a discretionary trust. If the amount gifted is above the allowance then there would be a lifetime transfer tax of 20%.
We might advise the brothers to consider making lifetime gifts. Provided they survive seven years from the date at which they make the gifts then there would be no inheritance tax payable.
They could gift up to £3,000 a year completely tax-free (and the previous year’s allowance can be rolled over if unused) and they could make small gifts of up to £250 a year tax-free. The brothers could also gift money to their spouses completely tax-free.
First published by Kent & Sussex Courier, December 2015.