Business Partnership Protection on Death

What is a Partnership?

• A business partnership is not a Limited Company that has shareholders, directors and profits chargeable to capital gains tax and then paid out to shareholders as dividends.
• A business partnership is not a single trader self employed person.
• A business partnership is a trading collective of a number of self-employed people that agree to trade together in partnership.
• Each partner is taxed on their share of the trading profits in the same way as self-employed.

For many partnerships, as we suggest it should be for all partnerships that a partnership agreement is set up.  A partnership agreement will include:

• The proportion/% of the business ownership for each partner.
• How profits and losses are shared between partners.
• The roles of all partners both in trading and administration.

We suggest the partnership agreement should also include:

• What happens if a partner leaves, wishes to sell up, retires or dies (succession).
• How the partnership can be dissolved.
• How new partners can be added if the business expands.

This video concentrates on the death of a partner.

• If a partner dies, do you want to be in partnership with their loved ones/estate beneficiaries?
• Will the business struggle or fail on death of a partner?
• Will the deceased partner’s loved ones be able to cope financially on death?

Partnership Protection Insurance

• Each partner takes out life insurance and puts it in trust for the other partners.
• On death, the remaining partner(s) receive the life insurance proceeds free of inheritance tax as it is outside the estate.
• The deceased partner’s loved ones inherit their share of the business/trade but assuming it is still a trading business, loved ones inherit the business interest inheritance tax free.
• A part of the partnership protection exercise, a ‘cross option’ was also set up.  This means that the surviving partners have the option to buy the deceased partner’s share of the business from the deceased’s loved ones (beneficiaries) by using the life insurance pay out.
• The deceased’s loved ones then receive payment for the share of the business that they inherited and assuming it is all done at the same time/soon after death, there will be no increase in the value of the business since death, so no capital gains taxes will be payable on sale of the business by loved ones/beneficiaries.
• Surviving partners retain control of the business and deceased’s loved ones/beneficiaries are provided for financially by being able to sell the business.

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