Running a family-owned business involves more than delivering good products or services. It also involves looking ahead to the day when control of the business transfers to a new generation. Planning for this event gives the business the best chance of staying strong and preserving family harmony.
Below, we share our view on the value of early action, the usual obstacles and the strategies that can help you keep your business in good shape for the long term. This includes legal and tax considerations for the latest tax year, although we have kept references to specific dates and figures to a minimum. At Thomas Barrie & Co., we have been advising family businesses across Scotland and the wider UK for over 60 years, and we hope these points will guide you towards a smooth transition.
The value of early succession planning
An unexpected event – such as an illness or a sudden shift in personal circumstances – can highlight the importance of a clear plan. Starting work on succession early reduces the risk of disputes and protects the enterprise if something unforeseen happens. It also gives future leaders the time to gain skills and knowledge, so the handover is organised rather than rushed.
According to a family business survey by PwC, many family businesses fail to survive beyond the second generation because ownership and leadership are not passed on carefully. Early preparation helps retain valuable knowledge, supports business continuity and positions the company well for future success.
Overcoming common challenges
Passing the reins to a new generation can raise questions about fairness and the roles of siblings or cousins. Complications arise when some family members work in the firm while others do not. There can also be differences of opinion about strategy, risk-taking or the extent of ownership stakes.
Open communication is helpful here. Clearly defined roles, alongside structures such as family constitutions, can keep everyone on the same page. It may also help to consult an independent accountant or solicitor to minimise friction.
Balancing family and business needs
Succession can be a very personal experience for everyone involved. It touches on lifetime achievements, cherished business traditions and the futures of family members. Balancing these elements with commercial needs takes care, but it can be done.
Written guidelines and well-managed meetings can help. These allow family members to talk about their vision for the business, how they hope to contribute and what they need to succeed. In some cases, not all children or relatives want to take over. Planning early makes it easier to find someone who does, whether they come from the family or are a professional manager.
Tax considerations and legal steps
In the UK, family business owners often face decisions about inheritance tax, capital gains tax and how to claim reliefs that may apply. For the 2024/25 tax year, the standard nil-rate band for inheritance tax remains at £325,000, and the residence nil-rate band may still be relevant if family homes pass to descendants. Business property relief (BPR) can reduce or remove the tax liability on transfers of certain business assets, subject to eligibility rules.
Capital gains tax can also become an issue when shares or property change hands. Business asset disposal relief (previously known as entrepreneurs’ relief) may reduce the tax rate on a qualifying sale. However, each form of relief has specific requirements. It is wise to keep good records and seek professional advice to ensure compliance with HMRC guidelines. You can find more details about BPR on the HMRC website.
From a legal perspective, families may need to update shareholder agreements, partnership agreements or the company’s articles of association. If formal changes are required – for example, if a new director is appointed – Companies House must be notified. For further guidance on this, see Companies House guidance. Confirming the responsibilities of each individual in these documents helps avoid disputes later.
Valuing the business and structuring the transition
Accurate valuation ensures that everyone involved has a fair view of the business’s worth. A valuation should consider the firm’s assets, liabilities, cashflow, customer base and prospects for growth. It is possible to perform a valuation in-house, but many owners turn to professional advisers to ensure the figure reflects true market conditions.
Next, the structure of the transition must be agreed. This might involve a direct handover of shares or a staggered transfer over several years. In some cases, the outgoing generation remains as mentors or non-executive directors, offering guidance while the new leaders take control. This gradual approach can help everyone adjust to new roles.
At Thomas Barrie & Co., we work with families to draft succession plans that reflect both commercial realities and personal goals. Our approach includes creating a schedule for handing over responsibilities, reviewing tax positions for optimal outcomes and setting up a roadmap that everyone understands.
Maintaining good governance
Having regular board meetings, recording minutes and creating a formal governance structure can help family businesses stay on track. Such measures promote accountability and make sure decisions are guided by agreed principles. When leadership changes, these structures serve as a steady foundation.
Regular performance reports, cashflow updates and strategic reviews help the incoming generation see where the business stands. This openness fosters trust, which is important when ownership is shared among family members.
How we can help
Our team of accountants and auditors has guided many business owners through the process of succession. We advise on tax reliefs, company structures and ways to keep disputes to a minimum. Our aim is to preserve the best of what you have built while preparing the next generation to lead with confidence.
If you would like to know more about our succession planning services, please visit the Thomas Barrie & Co. website or get in touch to arrange a consultation. We will be happy to discuss the options that fit your situation.
Ready to take the first step?
Early and thorough planning can keep a family-owned business running smoothly from one generation to the next. A well-structured transition preserves both family relationships and commercial strength. It involves open communication, robust legal documents and a solid approach to tax matters. By investing time and resources in a succession plan, families can protect their legacy and set the stage for continued success.
Contact our team today to start shaping a plan that suits your business and your family. Thomas Barrie & Co. is here to guide you towards a smooth transition.