The importance of succession planning for the farming community
The emergence and rapid escalation of Covid-19 has over the last few months, amongst other things, made us all rethink the precautions we have in place to protect our assets.
Having a succession plan in place will not only help to secure business continuity but also help prevent a lot of heartache for loved ones in the future, this is particularly relevant with farming businesses where often family and business is very much intertwined.
Any farmer will tell you that running an agribusiness is far removed from running a regular business. For a start it’s not just succession to the business many farm properties include the family home and there will be family members who do not want to take on the family business but who you will still want to benefit from a share of the assets.
What is Succession Planning?
Put simply, succession planning is about having long term plan in place for your business and not has many incorrectly believe retirement. Effective succession planning will not only help to secure its future but in many cases see a business grow and evolve as young enthusiasm and mature wisdom combines.
Why is it important?
With an ageing workforce and limited opportunities for new entrants, succession planning is essential for the future of British agriculture. For an individual business, succession planning can help to strike a fair balance between ensuring the business is passed to those who want it and providing a share of the parental assets to the non-farming siblings.
Where to start?
Initially with a conversation, it is important to find out what each family member wants for their own future. This may not be an easy conversation to have but it is important that everyone in the family that might be affected is involved. Bringing in an independent adviser or specialist succession planning consultant can be useful as an impartial mediator.
What should be covered in a succession plan?
To ensure a business and its assets are passed to the right person it is essential to establish:
- How the assets of the farm are owned
- Who is occupying the land and buildings and on what basis
- What each member of the family wants from the farm in the future and what role they wish to play now and in the future
- What is the long term direction of the farm and its business
Understand the tax situation
There are two types of tax you need to be aware of:
- Inheritance Tax (IHT)– agricultural property relief and business property relief can help to reduce or eliminate IHT on farming other qualifying business assets. There are lot of potential traps, particularly for diversified farms, so seek advice.
- Capital Gains Tax (CGT)– Giving away assets can trigger a CGT bill. It may be possible to claim Hold Over relief, which allows any immediate CGT to be deferred, with the person receiving the gift taking over the gain of the original owner. Relief can be claimed on qualifying agricultural and business assets and gifts into certain types of trust.
Wills and Partnership Agreements
A key part of succession planning is making sure that all members of the family involved in the business have valid wills and, where appropriate, a partnership (or shareholder) agreement is in place. This will ensure the ownership of the business ends up where they are intended so that there aren’t family arguments in the future.
It is important to consider when giving assets away, what would happen in the event of a son or daughter divorcing in the future. Pre-nuptial agreements can help protect the family business. Getting the right legal advice in this area is essential.
Pensions and investments
Pensions can play an important part in succession planning. They can provide a source of income or funds to buy farm land and / or commercial property, via a Self-Invested Personal Pension (SIPP) as part of the family’s wider succession plan.
When it comes to making provision for those children who do not wish to be involved in the future of the business, there is a wide range of investment options that can be utilised as part of the family’s plan.
If you are considering putting a succession plan in place and would like to speak to one of our experts then please call 0800 533 5349 or email Frank.Collins@mogersdrewett.com we are here and happy to help.