Buying the family business from your parents: gift, sale or family buyout?
How is a family buyout funded? Compare a gift, a sale and a mix, what a lender wants to see, and how a new company buys your parents' shares.
Reading time5 min read
CategoryBusiness guides
Written byThe bizbritain team
Your parents want to retire, and you want to keep the business in the family. There are three usual routes: they give it to you, they sell it to you, or you agree a mix. A family buyout is the sale route, and it usually works like any other purchase. A new company buys the shares, funded by your deposit, a loan and money your parents leave in the deal.
This guide explains each route and what a lender will want to see. It also covers how a family buyout is put together, and what your parents can do after the sale.
Section 01
Gift, sale or a family buyout?
A gift is the simplest route. You take over the shares and no money changes hands. But your parents get no cash from the business they built, and many need that cash to retire.
A sale gives them a price. You pay it, usually with the help of finance. A mix sits in between: they sell part of the business and give you the rest, or they sell at a price that suits the family.
Each route has a different tax result for you and for them. That part needs a tax adviser, not a finance broker. It matters more this autumn, because the Budget on 28 October may change how some handovers are taxed.
According to press reports, the Chancellor is considering taxing one common handover method as income rather than capital gains. Nothing has been confirmed.
Section 02
Why a lender still wants a valuation
It is your family's business. So do you still need the usual paperwork?
Yes. A lender is not lending against the family relationship. It is lending against the business's ability to repay the loan from its own profits.
Myth 01
“It’s a family deal, so the bank will keep it simple”
A lender treats a family buyout as a business purchase. It will want to know the price is fair, so an independent valuation helps.
It will also want a business plan and recent accounts. And it will look closely at who will run the business once your parents step back.
A price set by the family still has to make sense to an outsider.
Experience matters too. If you have worked in the business for years, say so, with your role and results. If you have not, show who will support you while you learn.
Section 03
How do you fund a family buyout?
A family buyout is often built the same way as a management buyout. You set up a new company, and that company buys your parents' shares. The money usually comes from three places.
Your deposit
Lenders usually want the buyer to put some of their own money in. It shows you are committed and it reduces the amount to borrow.
An acquisition loan
The new company borrows to pay part of the price. The lender looks at whether the business's profits can cover the repayments as well as its running costs.
Money your parents leave in the deal
Your parents can agree to be paid part of the price later. This is often called a vendor loan or deferred payment. It reduces what you borrow and shows the lender your parents believe in the plan.
According to RSM's tax team, HMRC will often confirm in advance whether certain tax rules apply to a family sale, if there are good commercial reasons for it. Ask your tax adviser about this before you agree the structure.
Section 04
Your parents' role after the sale
Many parents want to stay involved for a while. That can help, because a lender may be reassured if experienced owners support the handover.
Agree the details in writing. Will they stay on as directors, consultants or neither? How long for, and are they paid? A vendor loan also needs clear terms: when they are repaid, and what happens if profits dip.
A broker can look at the deal as a whole and find lenders who are used to family sales. We arrange business acquisition finance for buyers like you. On advisory deals we take no commission from lenders, and you pay us nothing unless a lender on our panel issues an Agreement in Principle.
This guide is general information, not financial advice. Applications are subject to status, affordability and lender criteria.
Got a question the guide didn’t answer? Talk to an advisor.
We’ve helped buyers fund deals from £25k to £10m across 100+ lenders. If you’ve read the guide and you’ve got a business in your sights, our advisors are on the phone now.