Owning property through a limited company is a common practice among investors and entrepreneurs in the UK. It comes with several advantages, such as tax efficiency, simplified asset management, and liability protection. However, when it comes to estate planning, this structure introduces a layer of complexity. Unlike personal assets, company-owned property cannot be simply left to someone in a traditional will like personal belongings or directly held property. Hence, it is vital to approach will-making with a robust understanding of how limited company ownership affects asset distribution after death.
This article explores the interactions between company ownership and estate planning, highlighting the necessary considerations, common challenges, and practical steps to ensure a seamless transition of business interests and corporate-held assets.
To understand why special attention is required when creating an estate plan involving a limited company, one must first distinguish between corporate and personal ownership. Property owned through a limited company is not regarded as a personal asset of the individual director, shareholder, or person who controls the company. The company itself, as a separate legal entity, owns the property. This legal separation plays a critical role in how the property is treated upon the owner’s death.
This means that a will cannot directly assign company-held assets, such as rental properties, to beneficiaries. Instead, individuals must structure their succession plans around what they do personally own — such as shares in the company — and determine how control of those shares and the company will pass on after their death.
A will is fundamentally a legal document outlining an individual’s wishes regarding the distribution of their estate. An estate typically includes personal possessions, savings, investments, and directly owned real estate. However, it does not directly include assets held by a separate legal entity like a company. Rather than listing the property itself in the will, a testator (the person creating the will) must focus on their ownership interest in the company.
For someone who owns the property through a limited company, what they can include in their will is the shares they hold in that company. The distribution of those shares, and therefore future control of the company and its property, becomes the key point of estate planning. This introduces matters relating to shareholder agreements, article of association, and director succession.
If the property is owned by a company, passing down this property is inextricably tied to passing down the company shares. A person’s shareholding determines the percentage of ownership, their influence over the business decisions, and their entitlement to dividends. Upon death, the shares form part of their estate and can be gifted to heirs via a will.
However, company shares do not automatically transfer to the named beneficiaries in a will. The executors of the estate, and potentially the surviving directors and shareholders, must also comply with the company’s governing documents and applicable shareholder agreements. These documents may restrict the ability to transfer shares freely or may require the existing shareholders’ consent.
Therefore, succession planning becomes more than just writing a will; it requires aligning legal documents, ensuring all stakeholders are aware of potential plans, and often putting agreements in place today to make intended transfers possible in the future.
A shareholder agreement sets out how a company is run and the rights and obligations of each shareholder. It may stipulate what happens to shares upon the death of a shareholder, including offering surviving shareholders the ability to purchase the deceased’s shares before they are transferred to anyone else.
For family-owned or closely held businesses, this could be a safeguard, preserving control among trusted participants. However, it may also override the instructions in a will. For example, if the agreement contains a clause requiring that the deceased’s shares be bought back by the company or offered to others before they can be transferred to beneficiaries, executors must follow that clause, even if the will says otherwise.
It is therefore essential to review existing shareholder agreements and update them if necessary to ensure alignment with estate planning goals. Failure to consider these agreements can lead to disputes or results contrary to the deceased’s wishes.
Every limited company is governed by its Articles of Association — a public legal document outlining the company’s structure and management rules. These articles may contain clauses related to the transfer of shares, shareholder rights, and the appointment of directors.
When creating an estate plan, it’s essential that these Articles are reviewed to determine how they will apply after the individual’s death. If a shareholder passes away and their shares are to be transferred to a beneficiary, the Articles might require the approval of the board of directors or might include pre-emption rights for existing shareholders.
Without careful alignment between the Articles, the shareholder agreement and the will, succession can be delayed or contested, potentially reducing the value of the estate or risking the continuity of business operations.
For more sophisticated estate plans, particularly where high-value property and company shares are involved, trusts can offer an effective solution. A trust allows assets (such as company shares) to be held and managed by trustees on behalf of beneficiaries. This can be beneficial when the goal is to provide income to dependents without giving them outright control of an operating company.
Trusts offer several advantages including the ability to provide for minor children, protect assets from creditors, and manage the timing of asset distribution. They also allow the testator to define how the beneficiaries may use their inheritance — which is particularly useful if the property is income-generating and long-term management is desired.
Placing shares into a trust should be done with the assistance of both legal and financial professionals, as it can have implications for inheritance tax and must comply with both the company’s constitutional documents and statutory law.
Appointing the right executors becomes even more critical when a business is involved. The role of an executor is to carry out the terms of the will and ensure the estate is administered correctly. However, if there is a limited company involved, particularly a trading one with responsibilities, liabilities, and operations, the executor may face challenges beyond the ordinary.
It is advisable to appoint someone who understands business processes — such as a business-savvy relative, solicitor, or accountant. In some cases, the appointment of a separate business representative, sometimes called a business executor, may be appropriate. This individual can manage the company during probate, protect its value, and prepare for transfer of shares or control, particularly where continuity of management is important.
When property is held via a limited company, the tax landscape becomes more complex. Although the property itself is not included in the deceased’s personal estate, the value of the shares in the limited company is. This means inheritance tax (IHT) is payable on the value of those shares, not the properties themselves — however, the value of the properties will inform the value of the shares. This distinction is crucial and can either reduce or complicate the calculation of IHT.
Business Property Relief (BPR) offers potential relief from inheritance tax for certain business assets, including shares in qualifying trading companies. However, if the company’s main activity is property investment or letting, it may not qualify. That makes planning all the more essential, as some families may be surprised by significant tax bills upon the death of a shareholder.
Professional advice is essential for evaluating whether any reliefs are available and what measures (e.g., life insurance policies or restructuring) might reduce inheritance tax liabilities on death.
Given the unique considerations mentioned above, prudent estate planning should involve the following actions:
1. Conduct a full review of your business structure – This includes identifying shareholders, directorship positions, property ownership records, and corporate bank accounts.
2. Understand the implications of Articles of Association and shareholder agreements – Secure updated copies of these documents and discuss their impact on your succession plan with a solicitor.
3. Review your will and align it with company governance documents – Your solicitor should ensure that your will does not conflict with binding shareholder agreements or corporate laws.
4. Consider setting up a trust – Especially where minor children or long-term company control is a consideration.
5. Engage a professional valuation – Accurate business valuation is essential for inheritance tax calculations and for making fair provision among heirs.
6. Appoint competent executors and consider business continuity – This includes making sure there are resources and people available to manage and preserve the business during the probate process.
7. Explore available tax reliefs or insurance options – Succession may create financial burdens for beneficiaries, and planning in advance for liquidity or tax efficiency will ease the transition.
Too often, individuals see estate planning as a one-time legal task. However, it is an ongoing process, particularly when business and property investments are involved. The complexity of limited company ownership requires not just drafting a will but integrating business and personal legal structures, tax planning, and family dynamics. Those who anticipate these challenges and plan proactively can preserve wealth, ensure continuity of operations, and avoid conflicts among heirs.
A qualified solicitor with expertise in both corporate and private client law, alongside an accountant or tax expert, should form the core of your advisory team. Together, they can craft a comprehensive plan that respects your intentions while meeting the legal and commercial requirements of your business.
Estate planning becomes significantly more complex for individuals who hold property through a limited company. The structure provides many benefits while living, but it changes the mechanics of inheritance. A clear understanding of the difference between personal and corporate assets, alignment of your will with shareholder agreements, attention to tax liabilities, and strategic planning are all essential.
The main focus must be on the succession of shares and the control they confer, supported by company documents that permit your wishes to be carried out. This demands forward-thinking, a multidisciplinary approach, and regular reviews as your personal and business circumstances evolve.
Privacy Policy
Terms and Conditions
Disclaimer
COPYRIGHT © 2024 MY WILL AND PROBATE
