Topic: Business financial planning

10 Guiding Principles to facilitate Family Business Succession Planning


I read recently about some of the more pertinent family business succession planning principles worthy of consideration. Having first-hand experience of dealing with family businesses, we have witnessed some of these principles in action together with the problems that can occur if these are not followed.

  1. Beware of the tax driven/cost saving succession plan: Research indicates that often, far too much attention is given to technical components such as tax, trusts, insurance and shareholders agreements, whilst insufficient time is given to softer touchy feely issues like wishes and aspirations of the family members, integrating and preparing the next generation and family harmony.
  2. Creating a legacy: Most successful family businesses adopt this concept. The founders of the family business have created a family asset that the family would like to continue to cultivate to establish a lasting legacy for the founders.  Applying this principle means that the family wants the business to remain in the family with all future generations acting as ‘stewards’ to safeguard the family business, grow it and make it better for future generations.
  3. Opportunity versus entitlements: Successful family businesses ensure that future

Turn Down the Noise


The Investment and Financial Services industry is noisy and is especially so in the middle of an election. Every day, thousands of articles, blogs, broadcasts, podcasts and webcasts are published, shouting for your attention and trying to make investment sexy.

It’s easy to fall into the trap of thinking that if you do not listen to the noise carefully and sift out the best ideas, i.e. the one’s that could help you find the highest returns—then you will not achieve your financial goals. Actually, we find the opposite to be true; trying to keep up with the latest investment fads can be detrimental to your long-term performance rather than beneficial to it. The noise can drown out the signal.

So what is the alternative?

We believe that it starts with having a strong evidence based investment philosophy that, over a long period of time, will prove to be rewarding for our clients. Our philosophy is based around some of the most enduring ideas in finance, these are ideas that help us achieve your financial goals by harnessing the power of capital markets in a systematic way. At the core, these fundamental concepts have remained the same for decades, but as research evolves into how markets work, our understanding improves and we develop our approach accordingly.

Added to this, we use investment managers that really take care over the details of implementation of the ideas. They understand that investment returns are precious and easy to lose in day-to-day management. They know it does not make sense to pay 5% in fees and costs to go after a 4% return.

This combination of a robust, enduring philosophy and a steady, disciplined application has helped us provide our clients with a way to turn down the noise.


The kids are alright?


Further to my blog at the end of March “You can’t Take it with you”, I wanted to share with you some experiences and observations around gifting to children.

In many cases people delay making decisions about gifting to their children and other family members which is often due to fears such as: –

  • They may squander the gift – This may indeed be the case, but if they are set to inherit the money eventually, gifting it to them whilst you are still around allows you to guide them.  However, if this is a concern then the money can be gifted into a Trust. This would entail additional cost, added complexity and possibly a feeling of distrust and therefore if you are considering this option, you should be open with the family; at least about why. Another option is to gift an asset such as a property or a house deposit, which is difficult to squander and from our experience, property ownership makes children more responsible.   Another somewhat extreme but effective measure is to make it known that if the gift is used unwisely, they may be disinherited.
  • Too much too young– I love getting song titles from the Specials into my blogs! Some people are concerned that giving money too soon could remove that individuals work ethic and desire to create their own wealth. This can be tricky and the choice will be determined by the child’s personality and the values they have had instilled upon them. Again, a trust may be a possible solution.


  • Future Outlaws – As we all know; divorce courts start from a 50/50 split of assets. If you are concerned

The Tailor Made Pension Scheme for the Family Business….


Family businesses in the UK employ over 9.5 million people and two thirds of this country’s businesses are family owned. We have a great deal of experience in dealing with family businesses, a lot of which comes as a result of the fact that we administer the ultimate family business pension vehicle, the Small Self- Administered Pension Scheme (SSAS).  

These schemes are the made to measure family business pension plan – the family are trustees, members and also have the facility to use the scheme’s funds to invest into the family business by way of a loan to the company (now referred to as pension led funding, but we still call it loan back) or by using the funds to purchase commercial property for the business.

The key here is that the family has control over the investment strategy, the membership (family members only) and the level of contributions (within limits set out by our good friends at HMRC).

In addition to this, the fund can assist with the family’s succession plans in that Mum and Dad can draw their benefits from the pension fund making them less reliant on drawing funds from the business. This enables more to be paid to younger family members working in the business, when they probably need it most.

In our dealing with the family pension schemes, we have grown into the role of family business advisors and developed the soft skills necessary to help families with their future planning. It is not always about the money, but often about how and who is best to take the business forwards and where to have the assets i.e. in the company or the pension fund to help with the future generational planning.

I am probably teaching to the converted in many cases, but please feel free to pass the word on to other family businesses that could benefit from a bespoke made to measure pension scheme or simply have a scheme but are not receiving any proactive advice on what they can do.


Priorities and Concerns of Family Businesses


A Happy New Year to you all.

At Carpenter Rees a great deal of our time is spent working with family businesses and therefore during 2016, to mark our commitment to the sector, we embarked on a research project with Manchester Metropolitan University’s Centre for Enterprise.

The initiative allowed us to gain a true insight into the aspirations of family businesses and will be instrumental in our work to help our clients reach financial freedom and achieve succession.

We are delighted that the research paper is now available to download from our home page. The research includes findings from a workshop held with some of our family business clients, as well as advisors that we often work alongside such as accountants, lawyers, finance and banking specialists, PR and marketing consultants and a management trainer.

We will continue to provide additional information in the area of family business over the coming months but in the meantime please do download the research paper, and of course, please share this with anybody who you feel would be interested.

Family Business Succession and the Need for a Plan


Let’s move away from Brexit and politics this week, as I am sure we are all fed up with the lack of a plan, and look at one of my favourite subjects – family businesses and succession planning.

Succession planning is one of the major hurdles in helping to build and maintain a family business. The complicated nature of family relationships in a business can make succession planning an emotional process. For the senior generation, acknowledgement of the inevitable can be difficult but for one reason or another they will become less capable in running the business. A good succession plan enables the leadership of the business to be passed on seamlessly from one generation to another.

Advent of crowdfunding


One of the main innovations in both finance and technology over the past few years has been the advent of crowdfunding.

Crowdfunding is a way of raising finance by asking a large number of people each for a small amount of money. Financing a business, project or venture in the past typically involved asking a few people for large sums of money, but crowdfunding switches this idea around.

Keep it in the family- Succession Planning


As a company we deal with many family businesses. One of the key benefits of a family business is the ability to ‘keep it in the family’ for future generations. This can however lead to a succession problem when the current generation is not letting go of the power. The next generation are preparing to take over the business for many years, whilst often the current generation has to come to terms with a number of issues of their own before they can let go of the reigns.  Two of the most common issues are: –

  1. Are the seniors financially secure independent of their stake in the family business? If not, they are unlikely to take a back seat.
  2. What will they do after they spending so much time running the family business which includes them enjoying the reputation and status this enables?

These issues cannot be solved simply by spending more time and cost preparing the next generation to take over. As much effort needs to be invested into helping the seniors face up to the financial and emotional challenges they will encounter in their next stage of life. In many cases family members will often find that the answers they need in succession planning are dependent upon what the other generation plan to do, such as: –

  • Seniors cannot feel they can plan for retirement until the next generation decide about whether they want a career in the family business. This sounds pretty obvious but many of the next generation feel that whilst they want to work in the business (it could be the easy option) they do not wish to run it.
  • The next generation wants to take over and has planned to do so, but the seniors are not ready to commit to succession and retirement planning.
  • The next generation are perhaps too young to make the choice to run the business but feel pressured to do so because that suits older parents.

Age and adult development add to the intergenerational dynamics of family businesses. Transitions tend to be smoother when the generations are what we would term as ‘In sync’ in that each generation is at the age and life stage to make the personal changes required for succession planning. The transition will be smoother when seniors aged between 60 and 70 are looking to structure retirement when the next generation are between the ages of 35 and 45 than it would be if the next generation was 19 to 25. The 19 to 25 year olds are exploring the options for the life they want so settling for a role on the family business may seem unattractive. When mid-life approaches, there is a stronger desire to make choices and have a more established life structure.

The transition of a family business is therefore far easier when the generations are in sync and when this is not the case, it may be better to take time over succession rather than put pressure on the generations. It is also very helpful if both generations discuss and understand the wishes of the other which are based around their life stage. These discussions must take place together and all must be frank and honest as to what they enjoy or dislike about their current stage of life and how they feel about the succession process.


Is it worth paying the Lifetime Allowance charge?


In April, the lifetime allowance (LTA) drops to £1M and for anyone approaching this limit there are some tough choices ahead:

  • Should I continue to pay pension contributions?
  • Should I give up the pension contributions from my employer?
  • If I exceed the LTA, is it worth carrying on paying into a pension?

How this could affect you depends on your circumstances, if you would like to speak to us about this, please give us a call.

Everyone’s initial reaction will be to stop paying into their pension as this will lead to a tax charge on savings in excess of the LTA.  However, is a bigger tax bill necessarily a bad thing?

Important considerations

So what must you consider when making this important decision?

Stop funding Continue funding
You’ll reduce or eliminate the LTA charge on future savings.

You’ll potentially be eligible for ‘fixed protection’ on your existing savings.

You’ll continue to benefit from your employer’s contribution.

You’ll still get tax relief on their personal contributions at your highest marginal rate of income tax (if within your annual allowance).

The pension will continue to grow tax free.

You’re likely to lose your employer’s contributions.

You’ll have to decide where to save your personal contributions instead.

Saving above the LTA will be subject to an LTA charge of 25% if savings extracted as taxable income (or 55% if the surplus is taken as a lump sum).

None of the surplus can be taken as tax free cash.

Fixed protection could mean that up to an additional £250,000 of your pension funds are free from the LTA charge, but just a single pound of additional contributions will void that protection. So it’s clear that there’s a trade-off of an increased LTA against the loss of future funding.

The loss of employer funding

Employer pension contributions are essentially ‘free money’. Even if you suffer an LTA charge of 55% on your entire future employer funding you’ll still be better off (As you’re still receiving 45% of something they would otherwise miss out on).

If you have to continue to pay into the scheme in order to secure the employer contribution, it could still make sense and take the LTA charge on the chin.

The goalposts may move if your employer is prepared to offer some other financial incentive instead of making pension contributions. This will very much depend on what the alternative offer is, and how much will be lost to tax and NICs (both individual and company), but is worth considering.

So I have decided to stop paying into a pension, where do I save for the future now?

  • Cash
  • National Savings
  • ISAs
  • Investments
  • Offshore Bond

But wait – why not continue to fund your pension?

Funding above the LTA certainly makes sense where it means retaining employer contributions (‘free money’), but the same can be said for personal contributions too!

There’s something that feels slightly uncomfortable about paying contributions knowing that an additional tax charge will be applied, but what really matters is what you get back after all taxes have been deducted.

The table below compares what you could get back after 10 years for the same net cost of £15,000:

Pension ISA Offshore Bond
Contributions paid (inc tax relief) £25,000 £15,000 £15,000
Final fund value

(10 years later assuming 2.5% growth pa)

£32,000 £19,200 £19,200
LTA charge 25% (£8,000)
Income tax 20% (£4,800)   (£840)
Net amount received £19,200 £19,200 £18,360

What this does ignore is the position on death; the pension is generally IHT free, whereas both the ISA and offshore bond will form part of your estate for IHT.


It’s only natural to think tax charges should be avoided – especially one designed to act as a cap on funding, but it’s always important to weigh up all of the options available.

If you would like to weigh up your options and the alternatives, please call us for a chat.