Managing and running a business with your family can be incredibly rewarding. It allows you to work with the people you trust most, share experiences with them, and build something together, potentially spanning across generations.
Yet, it also comes with some unique challenges, and perhaps one of the most significant of these is planning a succession.
Surprisingly, research reported by International Adviser reveals that 69% of family business owners do not have a succession plan in place.
Continue reading to discover why succession planning is so essential for family businesses, and three practical steps you can take to effectively plan for the future.
Not having a succession plan could result in tax issues, conflicts, or confusion
Without a clear plan in place for what might happen when important people step back from your business, this could easily result in significant disruption.
Indeed, roles might be unclear, family members might disagree on what to do next, and the staff might even feel anxious about what’s to come. This could considerably affect the performance and morale of the team.
Similarly, you may find that the departure of a key team member might leave a significant gap in skills or experience, ultimately reducing the business’s ability to operate effectively and damaging profits.
This is especially the case in founder-led businesses, where the founder often has significant knowledge and skills within the firm.
Without a clear plan in place, their sudden absence might show just how dependent the family business has become on a single person – something that might directly apply to your firm.
Conversely, a succession plan ensures that important information – such as who will take on responsibilities and how they will make decisions – is understood, helping ensure a smooth transition. It could also mean that the business can continue to operate without issue.
It’s possible that one of the more significant – and potentially costly – issues your business may face regards tax.
Typically, when you hand over a business, you may trigger several tax implications, such as Capital Gains Tax (CGT) or Inheritance Tax (IHT).
Without proper planning, your loved ones might face an unexpected tax bill that affects their ability to run the business. Meanwhile, thinking about this in advance could allow you to explore tax-efficient opportunities to make this process smoother.
Indeed, you may want to ensure that you fully understand Business Asset Disposal Relief (BADR), as this could reduce your CGT liability.
Just note that BADR rules changed in 2025/26. While the limit has remained at £1 million, the CGT rates on gains qualifying for BADR rose from 10% to 14%, with a further increase to 18% occurring in April 2026.
As for IHT, “Business Property Relief” could allow you to transfer shares between loved ones without incurring IHT, making it a potentially effective way to pass ownership of your business to the next generation. Just note that these rules are also set to change from April 2026, so it’s worth working closely with your planner to ensure you stay abreast of vital changes.
There is also an emotional factor in not planning for a succession. For instance, even if your family is close, disagreements can arise over responsibilities and ownership.
Thankfully, setting clear expectations could potentially help prevent disputes in the future that will leave lasting divides between your loved ones. This is especially beneficial if someone in the family has just passed away, as they will already be experiencing heightened grief and stress.
3 helpful tips for creating a succession plan for your family business
While succession planning might seem slightly daunting at first glance, there are ways you can make it easier – read on to discover three methods of doing so.
- Plan as early as possible
Possibly one of the greatest mistakes business owners make is leaving succession planning far too late.
Conversely, beginning early – even years before you plan to step back – could allow you time to:
- Identify potential successors
- Provide necessary training
- Establish clear leadership structures
- Test different roles before you make them permanent.
Early planning can also help prevent you from making rushed decisions in the event of an unexpected occurrence, such as an illness or family dispute.
You could even give the next generation the time needed to decide whether they even want the responsibility in the first place. If they do, then this could give them the space to prepare.
- Involve the whole family
You may find it surprising just how much emotion is involved when creating a succession plan for your family business. It encompasses more than just financial matters.
This is why it can be so beneficial to involve your entire family in discussions regarding succession. This can help temper their expectations, address any potential disputes that may occur in the future, and even ensure that everyone understands your plans.
It’s vital to remember that your loved ones’ goals will likely differ from yours, and it’s better to know now if your children aren’t interested in taking over the business.
This may even be the time to involve your financial planner, as they could act as an impartial sounding board during these potentially challenging discussions.
- Establish clear governance structures
After you’ve had these helpful conversations with your loved ones and made any plans, you could then decide how you will make any important decisions moving forward.
Indeed, clear governance gives everyone involved in the business clarity regarding:
- Who holds specific roles
- How future leaders will be selected
- Any measures in place to avoid disputes.
It can also be beneficial to take the time to review this plan on a regular basis, especially if dynamics within the family change or the business starts to move in a different direction.
Get in touch
You may find that our support offers some peace of mind alongside the financial benefits of creating a comprehensive succession plan for your family business.
If you’d like to learn more about working with us, please get in touch.
Email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
Approved by Best Practice IFA Group Ltd on 12/06/2025