Attitudes and behaviour towards inheritance are changing and many of these shifts have implications for the ways people plan their businesses and train their successors.
The “traditional” transfer of ownership between family members (often from father to son) is not always possible or desirable, and expectations of the post-war baby-boomer generation are very different from what went before.
In many cases the demands and expectations of dependants and siblings have to be balanced against the commercial necessity of putting the right management in place for the business.
Without early planning and good advice, ensuring a smooth transfer of ownership can be highly challenging. Businesses, properties and private wealth are all at risk, not to mention the possible strains upon livelihoods, friendships and family relations.
In the event of a particularly messy succession process it is quite possible that a business may have to be broken up. Family disputes or the need to pay unforeseen tax or death duties may force such a contingency. It is not a nice thought.
WEALTH AND TAX
Succession should be high on many people’s agendas because of the general rise in wealth in the UK, fuelled largely by the rise in property prices.
Prosperity has grown faster in recent times than economic growth (driven by house price rises), with one result being that ever more people are becoming caught in the net of inheritance tax.
More and more landowners have diversified, but while this will provide useful income streams it can also lead to unpleasant capital tax charges when changes of ownership occur.
Early planning and preparation will often mitigate the otherwise significant liabilities that many farmers may face. Also, such preparation will ensure your wishes are adhered to, with regard to the distribution of your assets.
The UK’s capital tax regime is, by international standards, a fairly benign one, and it is important to make the most of the opportunities it presents.
In addition, recent legislative developments such as the Antrobus ruling by the Lands Tribunal (see right) and the advent of a Planning Gain Supplement make it ever more important to take proper advice at an early stage. So there is a lot at stake.
Why then is it sometimes hard for individuals to formulate an effective succession plan and what are the obstacles to doing so?
It is no exaggeration to say it often proves too difficult a subject to discuss; owners simply cannot decide who should get what.
This often occurs in the light of a conflict between ensuring the continued success of the business on the one hand, while being fair and equal to all family members on the other.
The inequalities that used to arise as a result of the farm or land-holding going to the eldest son are no longer as widely accepted today. Sometimes, succession is not seen as the most urgent problem and is a topic for tomorrow.
Poor communication between owners and their successors can, and does, cause considerable pain, often on both sides. Feelings of resentment can be left, with non-heirs wondering, “why did I not invest”, and heirs thinking, “I can’t handle this”.
Sound reasons exist to implement succession planning as early as possible.
Within a family structure, it helps each generation to plan their future, avoiding misunderstandings and providing family heads with the chance to explain difficult decisions face to face.
In commercial terms, planning ahead can buy a successor the time he or she needs to come to terms with running a farm, business or estate.
In turn, the present owner gets ample opportunity to prepare the successor and make sure they are both fully committed and capable of taking over the reins.
Last, in financial terms, getting a plan in place usually provides a chance to minimise a potentially significant tax burden on the transfer between each generation.
These are all good reasons to get started sooner rather than later – your New Year’s resolution!