The importance of succession planning for family businesses

Family firms are the backbone of the UK economy, yet many owner‑managers still postpone succession planning for family businesses. That delay can jeopardise the livelihoods of relatives, employees and the communities that rely on them. More than 4.8 million family businesses – around 85% of all UK firms – employ 13.9 million people and generate £575 billion in GVA (Family Business UK, 2024). Handing those enterprises to the next generation without a clear plan can be fraught with risks: tax, governance, financing and, perhaps hardest of all, family dynamics.

As accountants who work with owner‑managed companies every day, we see the benefits of early preparation. A well‑structured handover protects jobs, preserves wealth and ensures that hard‑won reputations are not lost when founders step back. It can also spare families from hurried decisions at stressful times. The Office for Budget Responsibility expects inheritance tax (IHT) to raise £9.1 billion in 2025/26 (OBR, 2025), while HMRC receipts for the first quarter of the tax year already stand at £2.2 billion, £0.1 billion higher than last year (HMRC, 2025). Without forward thinking, a sizeable share of that bill can come from family firms.

Below we outline practical steps to keep your business – and your family – secure for generations to come.

Succession planning for family businesses: Why timing matters

Starting early buys flexibility. A founder in their fifties might feel succession is decades away, but:

• Retirement dates: Life events or ill‑health can accelerate departure dates.
• Share‑option windows: Many reliefs, such as Business Asset Disposal Relief, require qualifying periods.
• Leadership development: Successors may need years to acquire sector‑specific experience.

Early planning lets the current generation mentor the next, test management structures and refine shareholder agreements while the founder is still available for guidance.

Common pitfalls that delay smooth handovers

Even firms with healthy profits stumble over avoidable issues. Watch out for:

• Informal decision‑making: When everything sits in the founder’s head, successors inherit gaps.
• Undefined ownership splits: Sibling rivalry can distort commercial judgement.
• Unrealistic valuations: Over‑optimistic price tags deter external investors or retiring owners alike.

Tackling these barriers in advance allows objective solutions – for example, using independent valuations and family charters to codify expectations.

Tax considerations for 2025/26

The 2025/26 tax year offers planning opportunities – and traps:

• Business property relief (BPR): Up to 100% relief from IHT remains for qualifying trading assets, but any non‑trading element dilutes the benefit.
• Nil‑rate band freezing: The £325,000 nil‑rate band and £175,000 residence nil‑rate band are unchanged, bringing more estates into charge as asset values rise.
• Income shift: Passing shares early allows future dividends to be taxed on the next generation’s allowances and rates.

A phased share transfer, combined with a family investment company or trust, can harness reliefs while keeping control where needed.

Building a governance framework everyone trusts

Good governance removes ambiguity and keeps family relationships intact. Core elements include:

• Family constitution: Vision, values and dispute‑resolution processes in one document.
• Board representation: Clearly defined director roles for family and independent members.
• Reporting cadence: Quarterly reviews: transparent financials, strategic KPIs and risk registers.

By agreeing these rules before a crisis, the family presents a united front to staff, banks and suppliers.

Putting the plan into action

With objectives clear, implementation usually follows four phases:

1. Vision workshops: Align family aspirations with business strategy.
2. Structuring: Legal and tax advisers draft share transfers, wills and shareholder agreements.
3. Mentoring programme: Outgoing leaders shadow successors, gradually delegating authority.
4. Communication: Announce the plan internally and externally to reassure stakeholders.

Setting target dates – for example, “leadership handover complete by 31 March 2027” – keeps momentum and allows progress tracking.

Keep control of your legacy

Succession is not a one‑off event; it is a managed process that protects everything you have built – your people, your brand and your family wealth. Treat it as you would any other strategic project: set milestones, assign responsibilities, and measure progress. A written plan that everyone understands removes the scope for last‑minute disputes, reduces tax leakage and gives lenders, suppliers and employees confidence that the business will keep moving forward when leadership changes. It also creates space for the next generation to prove themselves while you are still around to guide them, rather than being thrown in at the deep end.

If you are unsure where to start, begin with three questions: who should own the business, who should run it day to day, and how will value be extracted fairly between family members who work in the company and those who do not? From there, we can help you model different structures, quantify the tax impact, and document governance so the family has a clear set of rules to fall back on when emotions run high. Reviewing the plan every couple of years ensures it stays aligned with changing tax rules and family circumstances.

Ready to put succession planning for family businesses on a formal footing? Speak to our team – we will help you design and deliver a practical roadmap that protects your legacy and gives the next generation the best platform to succeed. Get in touch or learn more about how our business advisory services can support you at every stage of the transition.