If one of your business owners were to die or become terminally or critically ill,
Shareholder or Partnership Protection insurance could provide the remaining business owners with the capital required to buy that insured partner or shareholder’s interest in the business. Shareholder and Partnership Protection gives business owners the financial reassurance you need to keep your business on track during an unsettling period.
The loss of a business owner can quickly destabilise a business and may result in financial difficulties for the remaining shareholders or partners. Shareholder and Partnership Protection insurance ensures that the remaining partners or shareholders have the opportunity to stay in control of the business, following the death, terminal illness or critical illness of one of the business owners. What usually happens when a partner dies is the partnership is dissolved and the beneficiaries of the deceased are entitled to the value of the deceased’s interests in the business.
Another alternative is Company Share Buyback. If a company has the authority to ‘buy back’ shares from the shareholders, the company could take out insurance on the lives of those shareholders. The appropriate option agreement should be completed to ensure the share purchase takes place in the event of the death, terminal illness or critical illness of one of the owners. Your financial adviser will be able to give you more information.
Premiums for Shareholder and Partnership Protection may be treated as an expense and could be offset against Corporation Tax if it is the business who pays the premium. However, HMRC will treat premium payments as part of the shareholder’s gross salary and be subject to personal rates of tax and National Insurance.
Providing the Shareholder and Partnership Protection arrangement between owners is established on a commercial basis, HMRC will not treat the premiums paid as gifts or transfers of value for Inheritance Tax purposes. The share purchase will also be subject to Business Property Relief and the share value within the deceased’s estate, so that in most cases, it will not incur Inheritance Tax.