Failure to successfully pass on the family farm to the younger generation is one of the biggest threats facing UK agriculture.
Farming has an ageing population and limited opportunities for new entrants and planning for the future and who will run the family farm has become a pressing issue.
But how can farmers take that first step to creating a succession plan for their own business? Read the advice below and the case study on how one family is working together for the continuing success of their farm.
Louise Speke, chief taxation adviser at the Country Land & Business Association, says it is important to understand the reasons for doing so in the first place.
“Succession is not all about retirement – it’s about creating a long-term plan for your business.
“What are your long-term goals, and how are you going to get there? A lot of people don’t want to think about death, but you have to plan who will take over the reins.”
Succession planning tips
- Succession is not only about retirement – it’s a long-term plan for the business
- Start the conversation early and update the plan as you go along
- It’s good to talk – understand and share expectations in a no-pressure environment
- Involve experts such as land agents, tax advisers and solicitors at an early stage
- Don’t make assumptions
- Equal isn’t always fair or practical
Of course, planning for retirement is important as well – do the older generation have enough pension provision and somewhere to live, or will they continue to draw upon the farm?
And does the farm really have the resources to support all the generations, or will someone have to look for income elsewhere?
The key to a successful handover is for everyone to know exactly where they stand, says Miss Speke.
“You’ve got to talk. And the best advice is not to do it around the parents’ kitchen table.
“Do it in a neutral location and get your lawyer, accountant and land agent along, too.”
This helps to remove any power struggles or emotion from the discussion, turning it instead into a structured business planning process.
Involving professional advisers will also provide a reality check over the value of farm assets, and flag up opportunities and potential concerns over the viability of different business plans, tax implications, and legal structures.
Should you worry about costs?
“People worry about paying professional fees, but the costs of getting it wrong are considerable,” she adds.
“For example, should the business owner die without making a will, intestacy rules could hand the assets over to the wrong person.
“If there is no written agreement for the succession plan – or if it doesn’t match the will – there is potential for family disagreements, expensive legal challenges, large inheritance tax bills and, ultimately, the possible break-up of the farm.”
Many farmers assume that their children do – or don’t – want to take over the farm, which could put the younger generation under unnecessary pressure, says Miss Speke.
“If you don’t have someone who genuinely wants to take over the farm, there are other arrangements like share farming or contract farming – they are wonderful ways to encourage new entrants into the industry.”
When is a good time to start discussions?
So at what age should families start having these discussions? According to Miss Speke, it is never too early.
“Business plans aren’t static, they should evolve as circumstances change. So start early, and keep your plan under review.”
Jonathan Armitage, head of agribusiness at Bidwells, reckons it is useful to keep inheritance tax and asset values separate from business management and planning.
Farmers should be clear on their objectives too: is the goal to divide assets equally among the family? Or is it to pass a thriving business on to the next generation?
“Equal isn’t always fair,” says Mr Armitage. “Often one sibling gets the farm and others get more liquid assets, which can cause difficulties between siblings.
“There is usually an expectation that the farm shouldn’t be sold, which can be a burden. And sometimes the farm is split evenly, meaning the business pays rent to the other owners. But then you’re saddling it with extra overheads.”
Explain your decisions to everyone
No one format will fit all businesses or families – and it is likely that any structure will have some drawbacks. This makes a frank discussion with all involved important, so they understand the reasons behind the decision making.
“It’s all about managing expectations of everyone involved,” says Mr Armitage. “Assumptions are dangerous; it’s always the unexpected that causes the most difficulty.
“If you get your planning right it removes any guilt or burden, and everyone knows what to do with their lives from the outset.”
It is also important to accurately assess the state of the business and the suitability of potential beneficiaries.
“Are you passing over an asset or a burden? Does it have value or huge debt? And is the person you are thinking of handing over to genuinely interested in and capable of taking on the business?”
Dealing with tenancy handovers
The handover of tenancies can create additional difficulties, says Mr Armitage.
For example, the conditions may state that only one person can succeed, and that they must have derived the majority of their income from the farm for a certain number of years.
“You really have to think ahead to avoid unforeseen barriers.”
Planning for retirement is also often more difficult for tenant farmers – the question of where they live and how they will pay for it can mean they end up farming forever. “Everyone – tenant or owner – must have a pension and save for retirement.”
Major life changes can impact the business
It is also important to consider the impact of major life changes on the business.
Birth, death, marriage, divorce – all could affect the business significantly, so it is essential to protect against potential damaging impacts as well as allowing for new opportunities, he adds.
Getting possible issues out into the open, and a plan down on to paper, often proves extremely beneficial for all involved, says Richard Soffe, head of the Rural Business School at Duchy College.
“The younger generation want to talk about succession but often feel constrained – and it’s a big issue for the older generation because there are often a lot of assets involved and a fear that it will all go wrong.
“That all makes it a bit of a taboo discussion,” he adds. “It’s all about exposing the elephant in the room. People actually feel so much better once they’ve been brave enough to open the discussion.”
Case study: The Harper family
Splitting a farm between your children is rarely going to be easy, but for the Harper family it has enabled their Worcestershire-based business to go from strength to strength.
A firm believer in letting the younger generation have their head, David Harper and his wife Diana passed on the farm in 2003, with all their children developing their own individual businesses.
“I’m no expert – I just did what my father did for me and my siblings,” says David. “He sold the farm to me at a preferential rate when I was 25 – after I’d been farming in Africa for a few years – and allowed me the independence to take it forward.”
David made sure all three sons worked away from the farm before they came back to the business, after which he discussed his succession plan with the family.
“Everything was properly valued and surveyed, and it was fairly clear to me how it should be done,” he says.
The land was sold at a commercial rate, with a financial lifetime gift to each member of the family.
“As long as I lived seven years after making the business over there would be no inheritance tax to pay, and we agreed that no one would sell any land in that time, although they could let it out so it wouldn’t become an unwanted burden,” says David.
Daughter Clare and her husband James now farm cereals and sheep in Cornwall. Son Richard and his wife Nicky manage events on the home farm as well as letting commercial buildings, running a charcuterie and a fishing enterprise.
Son John and his wife Alice run Harper Farming with hand-harvested vegetables, cereals, sheep and a 50-head suckler herd, while third son Mike and his wife Joanna run the Harvest Shop and farm park.
All the businesses are independent but have strong links with the Top Barn logo, with David and Diana keeping control of the 2ha business centre and its 60 tenants – which provides for their retirement.
“It’s very exciting helping people to develop, and the farm has grown a lot more than it would have done without their enthusiasm and technical knowledge,” says David.
Succession planning is often a difficult issue for farmers.
It can be quite a daunting topic to raise with family members, whether it’s because of the emotional issues that come with retirement or how to pass on a farm fairly to siblings.
NFU Mutual believes it’s important to start having conversations now involving all members of the family who are involved with the farm and to seek expert advice on the financial implications of the options open to them.