Succession planning is essential to protect your assets, your business, your family and more broadly the future viability of the farming industry.
We assemble the key issues and steps that have emerged from that intelligence in this simple step-by-step guidance:
What is Succession?
It is not about retirement. It is simply about the long term plan for the farming business; its goals, its vision and the plan to achieve them.
Farm business succession is crucial to the whole industry
A lack of succession planning is a serious problem for British agriculture; it’s an ageing workforce with easy few opportunities for new entrants.
Highly efficient, technically sound farmers, with excellent business skills and the ability to adopt new technology, understand risks and build resilient businesses are essential for the future of British agriculture.
Research on more than 700 farming businesses, conducted for the Let’s Talk Succession campaign, shows less than half have a succession plan in place.
“There is no question that sound, realistic and suitably challenging advice which is appropriate to the family circumstances is urgently required on a significant number of farms,” says Lord Don Curry.
1. Starting the conversation
This isn’t easy, but it is absolutely necessary for all sides. The key is to ensure that everyone in the family that might be affected is involved – and ideally an independent facilitator is bought in to take the `emotion’ out of the conversation and find out what each family members wants for their own future.
Bringing in an independent adviser or specialist succession planning consultant can yield huge benefits when starting the conversation with your family.
2. What must be covered in a Succession plan
Passing the business and assets onto the right person is essential and the fact that 80% of those surveyed in the Let’s Talk Succession research had a will reveals this is an important consideration for farmers. The first phase of the plan is 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 or needs from the farm
- The longer term direction of the farm and its business
- What role each member of the family will play now and in the future
3. Knowing about tax
There are two key taxes to consider:
- 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.
According to the Let’s Talk Succession survey, around a quarter of farmers said they couldn’t afford to retire. About a third of businesses could only support one successor, and 16% of respondents claimed the successor did not have the necessary skills or experience.
Succession can facilitate new entrants through a variety of alternative arrangements such as joint ventures, tenancies and share farming.
Joint ventures can help in every case, enabling businesses to grow by marrying different skills and resources, bringing in young enthusiasm tempered by mature wisdom.
4. In the right hands
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 in the right hands at the right time.
When giving assets away, it’s important to consider 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.
Giving the younger generation the skills and experience to drive the business forward while the older generation takes a step back or sideways is essential.
A phased plan that enables the senior generation to `mentor’ the successor in the responsibilities that come in running the business, without stifling or interfering with the ambitions of the new generation, are not always easy in a family environment. Again, independent advice or a professional outsider can help to facilitate this.
5. Pensions and investments
Pensions can play an important part in succession planning. They can provide a source of income for the older generation which may allow them to take less from the business.
From April 2015, there is now much more choice when it comes to taking money out of your pension.
The younger generation may also be able to use their pension funds to buy farm land and / or commercial property from the older generation, 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.
6. Put the Succession plan in place
Deciding when is the right time. There are practical challenges such as housing, pensions, and supporting other generations to consider. There are charities that can help in difficult cases where the farm cannot support more than one generation.
7. Other things you should know
- Tax can be complex and depends on your circumstances. Tax laws may change.
- The value of pensions and investments can fall and you may get back less than invested.
- Self-invested pensions require active management and investment expertise. Charges may be higher than for other types of pension plans.
- Farm land and commercial property may be difficult to sell.
8. Your tick-list
- Your will – make sure this ties in with your business succession plan and that all the family members have one
- Consider and make plans for: pensions, investments, tax, legal, capital assets, housing
- Time of handover
- Equipping successor with experience and skills
- Communicate the succession plan to your suppliers, buyers and bank