The UK’s 13.5 million baby boomers are currently driving an unprecedented transfer of wealth, but with so much of it tied up in the businesses they built, succession planning is becoming one of the most important issues for owners, staff, accountants and lawyers.
UBS’ recent Global Entrepreneur’s Report revealed that nearly a third (32%) of entrepreneurs are considering exiting their businesses within the next five years – rising to 57% among those aged 65 and over – with just under a quarter (23%) considering passing things on to the next generation.
Debjani Raffan, head of Scotland at UBS Global Wealth Management, explained that in the 20 years she’s been with the firm, this is the conversation that crops up the most with clients.
“People want to do right by their families and their employees, but talking about this is talking about death, so it can be difficult to get people to open up and engage,” said Ruffian. “We see a lot of it, where the kids have a different career, but come back again and take over – the thing is, you must have a proper plan in place – wills, proper documentation, preferably a charter that stipulates what happens when someone passes away.
“There’s a huge level of responsibility on the likes of UBS to educate clients and their children,” she continued, explaining that real-world examples of the mess that unexpected death can create often help, while the wealth manager also tries to work with accountants and lawyers to build a “mini boardroom” around clients, setting up trusts or investment companies and understanding the tax perspectives.
“It’s interesting to see how different families work: some write detailed family charters, while others might have factions which don’t communicate,” added Raffan. “Often people find that nobody is there to take on the business – this happens quite a lot of the time – and it can be very bitter sweet.”
Ralph Riddiough, head of corporate at Holmes Mackillop
Ralph Riddiough, a director and head of corporate at Holmes Mackillop Solicitors, agreed that younger generations increasingly have no desire to follow in their parents’ footsteps and take on the family business.
“With no obvious successor, baby boomers often consider themselves too busy running their business and don’t give the issue much thought until they want to retire,” he said. “A prime example of this can be seen in the pharmacy industry in Scotland – 30 years ago, a large proportion of Scottish pharmacies were founded and run by baby boomers, but many of these are now being bought by private equity and larger conglomerates looking for companies where retirement looms – the outcome is a real consolidation of the market.”
Riddiough said his firm regularly deals with retirement exits from pharmacies, dentists, opticians, manufacturing and engineering firms, helping to ensure smooth handovers to buyers.
“Sellers and long-serving staff members know the business inside out, but this wealth of knowledge has to be documented,” he explained. “A crucial part of a successful transition is the creation of a contract that legally protects the seller – in the haste to get a business off your hands, it’s easy to be railroaded and omit terms which protect any warranty and indemnity claims after the sale.”
Seemingly every deal announcement touts the synergies in corporate culture and values, but when a long-term owner is passing the baton, this kind of legacy planning and concern for staff often genuinely trumps price.
“Employee share incentive plans, where employees gradually become the owners are becoming increasingly popular, partly because the seller knows the staff,” noted Riddiough. “There are also tax benefits involved.”
Rupert Murdoch’s recent failed attempt to give his eldest son control of his media empire brought into focus question of succession. The court case saw the 93 year-old media mogul reportedly blocked in his bid to change his family trust, which gave his four eldest children equal voting power after his death. A court commissioner ruled that Rupert and his son Lachlan had acted in ‘bad faith’ and called their efforts a ‘carefully crafted charade’ designed to ‘permanently cement’ Lachlan’s control.
The case reportedly began when the Murdoch children watched an episode of drama series Succession, which sees the patriarch – played by Scottish actor Brian Cox – leave the family and business in chaos after his death.
“The surest way of dealing with this is to oversee the process of handing over the reins during life, though many business owners choose to keep working and to remain in control for as long as possible,” said Riddiough. “Any business that has a management tier that can step up and purchase or inherit the business to take it forward is in a fortunate position – this can be a kind of Holy Grail that is notoriously elusive.”
Josh Creedy, tax partner at Azets
Josh Creedy, tax partner at Azets, said that uncertainty is the most difficult aspect of planning for many businesses owners.
Worried about potential changes, many owners took pre-emptive planning action based on the inheritance tax (IHT) position set out in the 2024 autumn Budget, as implementation timescales were tight.
While the recent increase to the agricultural property relief and business property relief allowance threshold to £2.5m – and the ability to transfer this between spouses – were welcomed by many, there has been a loss of confidence prompting business owners into a ‘wait and see’ approach, although can result in a significant tax exposure in the interim.
“Those businesses owners looking to make an exit have not been spared from recent legislative changes, what with the reduction in the Business Asset Disposal Relief allowance, increase in associated capital gains tax rate and from November 2025, reductions in relief available for share sales to Employee Ownership Trusts,” explained Creedy. “The tax burden has certainly increased in the past five years, amid a difficult legislative environment.
“This is coupled with the inclusion of individuals pensions to IHT from 2027, creating a wholesale change in planning for succession.”
The IHT changes have increased concerns amongst business owners whether there would be sufficient cash reserves or cashflow to meet a liability, which can be a real ‘going concern’ risk for those with high asset values but low cash generation, like farmers.
“Old money-type, multi-generational family firms or landed estates tend to have loose succession plans in place,” said Creedy, who said that recent conversations with clients have focused on timing, with the recent changes expediting decisions around bringing in the next generation. “On the other hand, owner-managed businesses without a clear succession route are looking at internal options, such as management buyouts to continue the business, or an external trade sale and full exit.”
At the same time, Holyrood has increasingly diverged from Westminster with regard to devolved taxes.
“We see that in the complexity around income tax and the overall additional burden faced by Scottish taxpayer,” added Creedy. “Although IHT is not a devolved matter, there is concern that other taxes may follow suit and the divergence with the rest of the UK will grow wider.
“A more punitive tax burden will only add to the levels of uncertainty faced by Scottish business owners.”
