Too few farmers have made an adequate succession plan, leaving farms at risk of being badly affected by unnecessary tax bills and expensive litigation.
Brown & Co’s head of land agency Charles Birch said it was vital to put a framework in place to ensure the farm passed without unnecessary hurdles to the next generation.
The company has suggested a range of questions that farmers should ask themselves to work out if their planning is adequate (see below).
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“Our experience suggests that fewer than half of Britain’s farmers have made the necessary arrangements. We are regularly being instructed to try to pick up the pieces when farmers reluctant to make preparations face retirement or die. We would much rather help them plan for a smooth transition.”
Good planning made good business sense, said Mr Birch. “It is tax efficient, which may be critical to ensure the farm’s continued viability. It also helps avoid disputes among the succeeding generation, which are extremely common. These can leave a farm facing insurmountable debts if those who want to farm can’t afford to buy others out.”
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Farmers needed to consider several important areas to ensure they did not face unwelcome surprises, said Mr Birch. “Whatever you do, find out what the objectives are. Can the farm support the successors? If not, what steps need to be taken, including tax planning? Who will succeed you, and what should other beneficiaries receive, to ensure the business has the best chance of continuing?”
Key succession points
- Are your aspirations clear for the next generation?
- Is the business successful, or does it need restructuring?
- Have you made a will?
- Have you made a clear letter of wishes?
- Has inheritance tax been planned for?
- Are you sure the IHT regime will operate as you expect?
- Will there be enough income to maintain the next generation?
- Are farm debts, loans and working capital secure and tax efficient?
- Will the farm be kept as one, or divided?
- Does the farm have a viable future?
- Does the next generation have the right skills?
- Have all options, including contract or share farming, been considered?
- Does your plan cover assets that may not qualify for Agricultural Property Relief?
- Would rearranging the business structure aid future tax management?
- Should you consider the role of trusts?
- Are there any tenancy compliance issues that may trip you up?