The holiday park sector has always been heavily populated with family-owned businesses, often spanning several generations. Succession matters are perhaps the most important issues within family businesses, in particular picking the right method by which to pass on the family business.
It would normally be assumed that succession would be done by way of gift, but it should be remembered that this is likely to trigger a capital gains event. Taxpayers would traditionally have used holdover relief in order to shelter these gains – effectively the recipient of the gift stands in the shoes of the person making the gift, for tax purposes i.e. any gain is carried over to the new owner.
However, given that extracting profit for family businesses can be highly challenging with income tax rates reaching 47% at their peak, then it may be worth considering whether passing the business down generations could be done by way of disposal with actual value passing. In doing this, the seller will be able to secure the prevailing capital gains tax rate, either 10% (if you meet the criteria for Business Asset Disposal Relief) or at the full rate of 20% if this does not apply. Remember this could be paid up out of future profits earned by the company and, with the appropriate planning, it does not need to give the business a serious cash flow problem.
Good forward planning for these events need to factor in the right timing to achieve these changes but also the prevailing tax regimes and expectations moving forwards. The rate of Capital Gains Tax is currently highly attractive but this may not always be the case as future governments look to raise taxes from different sources. It’s difficult to see rates falling so the taxpayer could be looking at the status quo or worse. In addition, the taxpayer needs to look at the reliefs associated with Capital Gains Tax and consider whether these will remain available.
With challenges to the trading status of holiday and caravan parks for Inheritance Tax purposes too, it’s never been more important for the family business in the holiday park sector to plan for the future. Our team of holiday park specialists can guide you through this process, which could provide the family with a plan for the long term, not just operationally for the holiday season ahead. If you would like more information or advice, please get in touch with our EQ Leisure team by calling one of our offices or emailing leisure@eqaccountants.co.uk.