Passing a Family Business to the Next Generation

Some businesses are a family story that’s been written over decades. Handing them down should be a moment of pride and celebration. But the reality is, it’s also complex, with deep tax complications if you don’t handle the transition carefully.

One of our clients, a family-run company providing Special Educational Needs (SEN) software to schools, had reached the point where handing the company over to their son was time.

The parents had poured their lives into this business. They had created software trusted by schools across the country, nurtured relationships in one of the most important sectors of all, and earned a reputation for care and quality. Over the years, their son had stepped in to lead the day-to-day operations. He was ready to carry their vision forward. They were ready to take a step back.

The question was: how do you transfer not just shares, but a legacy? How do you transfer it all in a way that protects the business, the family dynamics, and the schools that depend on it?

We began by honouring what had been built. An independent valuation didn’t just put a number on the business, it recognised the full depth of its success. It looked closely at the revenue streams generated by the software licensing model, showing how the business had steady, recurring income over the years. It considered the exceptionally high customer retention rates within the education sector, reflecting the loyalty schools had shown and the trust they placed in the product. It placed real value on the intellectual property behind the proprietary software, acknowledging the innovation and expertise that had gone into creating it. It also recognised the strength of the brand’s reputation, supported by long-standing contracts with schools. The proof that the business had become a reliable part of the education landscape.

From there, we created a structure that allowed the son to take on full ownership in a way that was both secure and forward-looking. A new company was incorporated to hold the acquired shares, giving him clear ownership of the business while creating a clean foundation for the next chapter. This structure also made space for potential future investment – should the business wish to bring in external backers to support growth, the framework was already in place to do so smoothly. And importantly, it offered tax efficiency for the son’s ownership, ensuring that while the business grew under his leadership, it did so in the most sustainable way possible.

With HMRC approval secured for a share-for-share exchange, the transfer was completed without triggering an immediate Capital Gains Tax bill – removing a huge burden of uncertainty for the family.

As part of looking to the future, the family also explored opportunities for external investment. The aim was to give the business the flexibility to grow further…whether through new product development or expanding its reach within the education sector. Careful thought went into every detail. Any potential investor’s shareholding had to be balanced against one crucial principle: the son would maintain a controlling interest, ensuring the family’s vision and values remained at the heart of the company. Alongside this, discussions focused on long-term strategy – aligning growth plans with the needs of the schools, and making sure that investment would be a tool for expansion, not a distraction from the business’s purpose.

With the structure in place, the next priority was protecting the business for the long term. Working closely with solicitors, we helped put strong shareholder agreements in place. These agreements set out clear voting rights and a fair dividend policy, ensuring decisions could be made confidently and profits shared transparently. They mapped out exit strategies, so that if circumstances ever changed, the business would remain steady and safeguarded. We also made sure they included restrictive covenants for departing shareholders, protecting the company’s intellectual property and relationships from future risk. Together, these measures created a framework of security. Giving both the parents and the son the confidence that the business they had built would be protected no matter what came next.

Finally, it was just as important to make sure the parents’ exit was handled with the same care and respect as the transition itself. After decades of hard work, they deserved peace of mind, both personally and financially. We reviewed their position carefully to assess eligibility for Business Asset Disposal Relief (BADR), ensuring they could access the most favourable tax treatment available. Payment structures were designed to spread liabilities across multiple tax years, making the process smoother and more manageable. Different scenarios were modelled — from a single lump-sum sale to deferred payments with an earn-out — so the family could see clearly how each option would affect their tax liabilities and choose the path that felt right. A clear timeline for reporting and payment obligations was also laid out, removing uncertainty and ensuring the parents could take their well-earned step back with security and pride.

In the end, the transition achieved everything the family had hoped for. The parents were able to step back with a structure that respected their years of commitment and secured their exit in a tax-efficient way. The son became full owner of the business he had helped to grow, with a clear foundation for future success. The company itself remained steady throughout the process, the schools experienced no disruption, contracts continued smoothly, and the business was left with the flexibility to bring in investment and pursue growth when the time is right. A legacy protected. A new leader empowered. And a business — just like the schools it serves — set up to thrive long into the future.