How Probate Works for Business Assets
20 May 2019
By Probate Solicitor, Stephen Carruthers
If the Estate of a deceased person includes business assets it is likely that the Probate process will be complex. A Grant of Representation will always be required to deal with business assets after the owner has died.
The work required to sell or transfer business assets during Probate will depend on a number of factors, such as whether the business was owned solely by the deceased, whether it has employees, whether it is still operational and what property (if any) is owned by the business.
What if the Business is Still Operating?
If the business is still operating, but there is no one else to run it, it may be necessary for the person dealing with the Estate to become involved with the day to day running of the business. This could include dealing with debtors and creditors as well as the associated administration of dealing with any employees still on the payroll.
A decision will need to be made as to whether the business should cease trading or whether someone else is in a position to step in and continue running the business. There will be a significant amount of associated administration whichever route is chosen.
Business Partnership Assets
If the deceased was in a business partnership, they may own partnership assets in their own name. What happens to the deceased's share in the business will depend on the terms of the partnership.
The partnership may be ruled by the statutory provisions of the Partnership Act or by an agreement between the partners, which will set out what should happen to a partner's share on upon their death. Often the death of a partner will dissolve the partnership, and it may be possible for the surviving partners to purchase the deceased's share of the business.
Limited Company Assets
The deceased may have shares in limited company, such as an unlisted family business. Often a limited company's 'articles of association' will restrict the transfer of shares (this is the document which outlines who controls the company and sets out what they can and can't do). This restriction means that the deceased's shares may only be able to be transferred to certain individuals.
When dealing with assets in a limited liability company, the Personal Representatives of the Estate will have to liaise with the company secretary regarding the valuation and transfer or sale of the deceased's shareholding.
For free practical advice following a bereavement, call 03306069584. We can help you with the practical steps, and if you need Probate, provide a no obligation fixed-fee quotation.
Valuing the Assets of the Business
Many companies will own certain assets which will also need to be dealt with, particularly if the deceased owned the business on their own. There may be stocks, equipment, machinery or vehicles to deal with, and a sole trader could own a business premises in their sole name.
It is not always simple to value the assets of the business. HM Revenue & Customs require accounts for the three years leading up to the date of death, together with a balance sheet showing the date of death financial position.
Often, business assets are shown at 'book-value' rather than true date of death value, which can cause issues further down the line. Therefore, it may be necessary to instruct a Chartered Surveyor to value properties and specialist accountants to audit the company accounts.
Business Property Relief and Agricultural Property Relief may be available to reduce exposure to Inheritance Tax. Depending on ownership of business assets or the structure of a partnership, the value of the assets for Inheritance Tax purposes could be reduced by 50% or may even be entirely exempt.
Selling or Transferring Business Assets
The next step is the sale or transfer of the business assets. This may be as simple as transferring ownership of a business premises or shares. However, for more complex situations, it may be necessary to instruct a commercial property lawyer to assist with the sale or transfer of a business.
Settling Income Tax with HMRC
Finally, it is likely that the deceased will have completed self-assessment income tax returns during their lifetime. Responsibility to ensure that tax returns, both to date of death and during the Estate administration period, are submitted to HM Revenue & Customs falls to the Personal Representative(s) of the Estate.
To calculate income tax liability, it may be necessary to obtain the business' books and collate invoices and receipts of expenditure. It is often prudent for the deceased's accountant to assist in the preparation of any outstanding returns as often they will have a better understanding of the day to day administration of the deceased's business affairs.