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The importance of financial advice in family partnerships

10th July 2024

a family talking to their lawyer

There are some key areas of financial advice that you’ll want to consider to ensure you establish and maintain an effective family partnership whilst keeping risks and conflicts low.

As an essential first step, your legal team will advise you on how best to structure the partnership to make sure it best fits the needs of the family. It is vital that the family understands the impact of this structure on their personal situations. This will be quite different for a ‘general partnership’ as opposed to a ‘limited partnership’.

Family partnerships allow you to transfer wealth to other members of the family whilst still retaining some element of control if required. Gains on assets within the partnership can be shared among the other family members in a tax-efficient manner and income can be distributed to family members who fall into lower tax brackets, effectively reducing the overall tax liability.

There will also be wider tax and estate planning opportunities that apply to family partnerships in much the same way as we think about for own personal situations. Pension contributions can be made for members to extract profits from the partnership and build provision for the family members. These are treated as personal pension contributions resulting in an immediate 25% uplift from through basic rate tax relief, plus further relief through your self-assessment if you pay more than 20% tax. This may help build suitable provision for older family partners to exit the partnership at an appropriate time.

Pensions can build individually for the members or can be used more collectively for the wider family through the use of a Group SIPP which can be used to purchase commercial property.

As with all partnerships, provisions should be made in the family partnership agreement for the death and incapacity of a partner. This is essential for seamless succession planning for the partnership. A form of insurance, Partnership Protection, can be used as safety net against death or critical illness.

As the partnership develops, financial advice should be taken to develop an appropriate investment strategy for the assets within the partnership, ensuring this aligns with the family’s financial goals and risk tolerance.

This should be monitored and developed as the partnership evolves so that a suitable balance is maintained ongoing. There can be multiple asset types within a family partnership and advice may be required to understand how these all work together most efficiently.

There might be complexities with conflicting objectives within the family or specific preferences and goals that need to be addressed, for example charitable donations; taking financial advice will help identify these and build an appropriate strategy.

The partnership may need advice around cash flow management to make sure liquidity and distribution requirements are met and can continue to be met at the relevant time.

Similarly, advice should be taken on the capital contributions from family members to ensure this is the optimal route for the partnership and the members personally.

Family partnerships will benefit from ongoing financial and legal advice to review the above areas ensuring things stay on track and are aligned with their goals. A regular review will also allow the partnership to react and adapt to change changes in family circumstances, market conditions, or legal and tax environments.

This article was originally authored by Laura Ripley, Chartered FCSI, BRI Group

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