Succession is universal to all businesses, and particularly owner managed farms. The great danger is ignoring it in the hope it will go away – it won’t, it will just become a bigger issue as time goes by, says Lloyds TSB’s Dick Mason. “Like going to the dentist, don’t put it off,” he says.
Plan early and involve the whole family. You might think you know what their hopes and aspirations are, but you might not, explains Mr Mason. “Be prepared to listen to them and understand their concerns. Above all, discuss it before making any significant expansion or development of the farm. The earlier you do it the better.”
Retirement for most people in salaried jobs comes naturally at the end of their working life, usually at 60 or 65 years. But many farmers never retire, adds Mr Mason. “For this reason it’s important to ask yourself whether that’s what your partner wants? Is that what your successor wants? It may be time to step aside and let the next generation have their head,” he says.
And when it comes to finance there are a few key issues to consider, says Mr Mason. “Pensions, for example may have had-a bit of a chequered history but they are great to have when you retire, reducing pressure on the business and your successors.
“Also make sure there is an equitable settlement on children not involved in the business in order that your successor is not burdened with debt that the business cannot cope with. With capital gains tax, if it rises have dispensation for business assets.”
Farm land may be exempt from inheritance tax so it is beneficial from a tax view point to continue operating the farm even in retirement, but take care to be seen to be actively involved in the business, says Mr Mason. “If it looks like you are a landlord/tenant relationship it could jeopardise IHT relief.”
When it comes to tenancies it is worth approaching the landlord to see if they are prepared to consider the transfer of the tenancy into the successor’s name, prior to retirement or death. “This can remove uncertainty for all,” he says.
And at all stages involving the successor in all aspects of running the business is vital, advises Mr Mason. “For example, get them involved with meetings with your accountant, bank manager, major suppliers, purchasers and consultant. Too often this doesn’t happen early enough. Young blood could have a lot to offer as well as learn.”
Drawing up a detailed business plan will also help the successor realise whether the hopes are financially viable. “Succession often results in increased borrowing and increased drawings on the business,” says Mr Mason.
“For many it will pay to use a good consultant for the job. They can challenge you, advise you and crucially pull it all together into a robust budget. In that way you, your successor and your banker will have the confidence to move forward.”
CASE STUDY Rich Smith, Chesterton, Leamington Spa, Warwickshire
Rich Smith, who farms 1100 acres carrying 1600 ewes and a 160 cow suckler herd, says it is thanks to his parents Dick and Marjorie’s forward thinking that a family partnership and subsequent succession was agreed back in 2001. “They were a driving force and wanted to make sure that myself and my sister, Lynne, became business partners and a succession plan was in place before they reached 65 years, and while I was in my mid-twenties and Lynne her early thirties.”
While taking responsibility for the farm’s day-to-day running, which had gradually evolved over the years for both Rich and Lynne, the new arrangement meant they started to become fully engaged in running all aspects of the business, from buying and selling to managing the accounts. “We believe we have a responsibility for each other and have taken advice from various sources on CGT and IHT and made the appropriate provision, and we are also now able to make further changes should the situation arise,” he explains.
“Overall, I think we are in a fortunate and comfortable business position, which enables us to think outside the box and do some things differently. For example, we have just decided to abandon the arable operations and focus on sheep and beef. Dad is still active around the farm, he provides a guiding hand where necessary and we take major decisions as a family.”• code123