Succession Planning & Wealth Transfer: The Return of Tax-Driven Planning

Panel Discussion Reveals Fundamental Shift as BPR Changes Force Families to Prioritize Tax Over Comprehensive Wealth Protection

The Manchester Conference's afternoon session on succession planning and wealth transfer brought together five distinguished advisors who painted a picture of an industry caught between competing imperatives: comprehensive family wealth protection versus increasingly urgent tax mitigation.

Anne Baggesen, Head of Business Development at Charterhouse Lombard, an independent boutique trust company based in the Isle of Man with a presence in Dubai, delivered one of the session's most striking observations. "I've been in the industry for quite a long time," she noted. "I've never had so many conversations about businesses all of a sudden." She continued with a pointed reflection on how planning priorities have evolved: "In the past, a lot of planning was around tax or it was about where can I put this money so that someone else doesn't see it. Then every conversation was about estate planning and succession planning. It's starting to talk about tax a lot more now."

This return to tax-driven planning—after years of more holistic family wealth strategies—emerged as the session's dominant theme, as the panel explored everything from legacy trust structures to the rise of family investment companies and the increasing importance of prenuptial agreements.

The Pigeonholing Problem

Paul Bricknell, Head of Private Client and Tax at Kuits in Manchester, opened the discussion with characteristic candor: "I've never been busier and I've never been more depressed." His concern centred on how succession planning is being "pigeonholed into being only about tax, which makes the advice so much more difficult."

Succession planning, Bricknell emphasized, should encompass wealth preservation, protection from divorce, protection from profligacy, and charitable giving—"so many factors." Yet the October budget's business property relief changes are forcing families to prioritize immediate tax concerns over comprehensive planning.

Catherine French, a Manx-qualified lawyer heading the private client team at DQ, stressed the importance of "adaptation" in succession planning—creating structures that can endure long-term without becoming rigid, involving multiple generations and advisors.

The BPR Catastrophe

The panel devoted significant attention to the practical implications of the £1 million cap on Business Property Relief. Bricknell highlighted a widely misunderstood reality: "The headline rate will be 20%, the real rate is potentially nearer to 30%, because if the money is in the company to pay the tax, you've got to pay a dividend to pay tax, so you get a double tax charge."

The competitive implications proved equally sobering: "How can a UK family-owned business compete with international businesses doing the same thing when they're suffering 30% tax every generation and their competitors aren't?"

Patrick McDermott from JP Morgan Private Bank noted that insurance solutions are becoming essential, though he acknowledged the challenge: for elderly clients or those with health problems, insurance may prove prohibitively expensive. The panel identified a particularly acute problem for small self-administered pension schemes holding business premises—these could face inheritance tax liabilities with no apparent mechanism for payment.

Legacy Structures Under Stress

A recurring theme emerged around older offshore structures, particularly Liechtenstein foundations and anstalts. Bricknell described a "massive sea change in HMRC" over recent years: "10, 15 years ago, you could sort of just put to the revenue, 'we think it's this,' and they'd come back and go, 'yeah, we can't be bothered looking at this, we'll agree with you.' Now we're taking 10-12 months to negotiate what it is, and they're sending it through multiple layers of their legal system."

Ruben Sinha, whose family law practice regularly involves UHNW spouses attacking such

structures, reported “much of the time” he advises that trusts aren’t safe from English divorce courts. “We’re seeing these sorts of structures, particularly offshore trusts set up years ago often for tax planning purposes, coming under attack and often being treated as a resource or varied in the English Family Court. Stress testing old and new structures is crucial.”

The Crown Dependencies—Isle of Man, Jersey, and Guernsey—received consistent praise for their well-aligned trust laws, robust regulation, and effective firewall provisions. As Bricknell noted, when dealing with these jurisdictions, "if it's a life interest trust there, it's almost certainly a life interest trust here."

The Rise of Family Investment Companies

The discussion illuminated why family investment companies (FICs) are increasingly displacing traditional trusts. Bricknell was blunt: "We're getting to a point where the trust just isn't an option. Because it's not an option, the company becomes the only solution."

The practical advantages are compelling. As Sinha observed, "Lots of clients just understand companies more. They've built up businesses, they've exited businesses, they're more conceptually familiar with companies than with trusts." Catherine French highlighted cultural factors, particularly for Middle Eastern clients struggling with the concept of "relinquishing control" to professional trustees.

McDermott outlined investment advantages: unlimited flexibility in asset classes, corporation tax rates significantly lower than income tax, and the ability to navigate different tax structures through directors' loans and dividend strategies. The portfolio can even be geared up to approximately 70% leverage on a balanced portfolio.

However, Bricknell identified a key limitation: unlike trusts, FICs struggle to plan for "unknown beneficiaries"—future grandchildren not yet born. The solution? A hybrid approach, with some FIC shares held by trusts to provide flexibility for future generations.

Asset Protection in the Modern Era

The panel explored how modern trust structures differ fundamentally from their predecessors. Catherine French noted a "massive drafting change": spouses are now typically excluded as beneficiaries, with some trustees requiring couples to enter cohabitation agreements or prenups as a condition for distributions.

Ruben Sinha confirmed that prenuptial and postnuptial agreements have become “very much a standard for wealthy families” over the past decade. While not automatically binding in England properly executed agreements – where both parties had advice, disclosure, and the financial provision remains fair – are increasingly upheld. “It’s getting harder to get out of these agreements,” Sinha emphasised.

The international dimension adds complexity. Wealthy families with cross-border connections require coordination between jurisdictions to ensure English agreements are drafted in a way so they carry weight in other jurisdictions where a family may be spending time. He is currently advising on international agreements involving Switzerland and Singapore. The same needs to be considered for inbound clients with existing foreign agreements, where it may be appropriate to put in place an English post-nuptial agreement.

Anne Baggesen emphasized that despite the challenges facing legacy structures, offshore trusts remain vital for contemporary planning. "The use of offshore trusts and the real protection they provide will continue to be an important part of the planning, as trust law and regulation evolves so that it's fit for purpose," she noted. This evolutionary approach—adapting established structures to meet modern requirements—offers a more nuanced perspective than simply abandoning trusts altogether.

The Next Generation Challenge

The panel concluded with thoughtful discussion about engaging younger generations. Anne Baggesen highlighted the trustee's evolving role in this landscape: "An important part of the role of the trustee is to understand the whole picture and life stages of the whole family; being party to the communication with the family and their advisors is key." This holistic approach—understanding not just assets but family dynamics, individual circumstances, and developmental readiness—represents a shift from the traditional arm's-length trustee model.

Patrick McDermott described the "fine line" between appropriate disclosure and burdening young people prematurely, recounting a case where a grandfather's gift caused a granddaughter to drop out of university.

Paul Bricknell offered a provocative observation about children who object to trust structures: "The child that objects to the trust is the one that most needs it. Because the one that objects is the one that wants access to the money to spend it on the car, the holiday, et cetera. The ones who are most accepting see it as generational wealth and are already thinking about their next generation."

As the session concluded, Anne Baggesen's opening observation about the return to tax-driven conversations hung in the air—a shift that simultaneously represents both defeat and pragmatic necessity in the current environment.