Thinking the unthinkable: Why it’s time to talk about succession planning

©Ned Jolliffe

©Ned Jolliffe

Thousands of family farms face an uncertain future because there are no plans in place to hand on the business to the next generation, reveals a Farmers Weekly survey.

More than 60% of UK farming families lack a written succession plan embedded within their business, according to the study – even though 64% of families believe the absence of such a strategy threatens the future of the farm.

See also: Read our succession planning academy

Lack of communication and a desire to avoid family conflict are among the biggest reasons for not having a succession plan, reveals the survey – although the owner’s reluctance to retire and businesses that can only support one successor were also mentioned as major challenges.

More than 700 farming families responded to the survey.

Emily NortonEmily Norton Frettenham, Norfolk

The Norton family have farmed at Frettenham, Norfolk, since 1946. Such family-run dairy and arable farms are increasingly rare in this part of the world – especially when they extend to little more than 150ha – and succession can be an issue.

“You can’t subdivide that sort of area into viable units when you hand it on,” says Emily Norton.

“So grandfather created a partnership agreement to keep the farm intact for those who wanted to farm it – but we have still had some difficult conversations.”

Emily returned to the farm in 2007 after a legal career. She says she doesn’t necessarily fit perfectly into the farm, but still believes she has an important contribution to make and a valuable role to play in ensuring the next generation can derive their livelihood from the business.

“There are a lot of family members on a small area, so it can feel quite crowded.

“Talking about succession wasn’t something we were always going to do – my father was keen to ensure that his share was passed on from a tax planning point of view, but inevitably life gets in the way.”

The issue isn’t completely resolved, although succession is an ongoing topic of conversation.

“We don’t have a written succession plan because situations change and so do people’s aspirations. If you write it down, a succession plan is only relevant now.”

To avoid uncertainty, business meetings are held once a fortnight. “It is important to have a forum where everyone can say what they like – and keep things moving forward.”

If the survey results are extrapolated across the whole of the UK, it suggests that as many as 40,000 family farms are at risk because they lack a succession plan.

The survey paints a stark picture of the biggest challenge facing many farming families.

While most respondents wanted to keep the farm within the family, they often felt unable to secure a future for the business in a way that catered for the needs of everyone involved.

The main reason for not having a succession plan was because the “conversation was difficult to start” – although this was more likely to be cited by successors than farm owners.

Successors were also more likely to cite family conflict as a challenge to succession planning.

The online survey was conducted by Farmers Weekly in association with NFU Mutual during March 2015.

Responses were split into owners with a farm to pass on to the next generation and successors who are hoping to inherit a farm or farm business.

NFU Mutual chartered financial planner Sean McCann said: “A succession plan can play a big part in securing the future of the farming business.

“Whether the plan is to hold on to the farm until death, or give it away during the owner’s lifetime, having a plan will ensure a smoother transition.”

Making sure the plan is structured in the most tax-efficient way, with appropriate wills and agreements in place, would also help ensure the farming business ends up in the right hands at the right time, said Mr McCann.

Generation gap

But the survey uncovered a significant divide between the generations.

A lack of communication within farming families about succession means potential successors frequently expect to take on the farm business sooner than owners are willing to relinquish control.

Similarly, while 74% of successors said the lack of a succession plan was a threat to the business, only 42% of owners agreed.

There were further differences of opinion on why succession planning was important.

Michael Mack, partner with rural business consultant Smiths Gore, said: “A lot of the findings are very worrying – even if sadly they aren’t surprising.

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Christopher Bourne ArtonChristopher Bourne-Arton, near Ripon, Yorkshire

Now in his 70s, landowner Christopher Bourne-Arton (below)says he always knew he would inherit the family’s Tanfield Lodge estate, which comprises a number of mixed arable holdings from 120-200ha near Ripon, North Yorkshire.

“From a very early age, my parents made it quite clear to me that owning land was very nice – but there is no cash in it and ownership came with great responsibility,” he says. “So I have always known that. My mother also made it clear that she wanted it to be handed on intact as much as possible.”

Despite having a brother and two sisters, Mr Bourne-Arton says the estate started to filter down to him once he got married – with his mother retaining enough to keep her in the style to which she had become accustomed.

“We have carried on the tradition of that,” he says. “Again, I spoke to my children early about what we have and how I envisage it going.

“I have never had any problem with that – what they think privately I don’t know, but they know how it is and we are lucky we can assist them.”

Mr Bourne-Arton says the main bulk of the estate is now starting to trickle down to his grandchildren. Succession is about retaining the essential and core of the estate while trying to make provisions for other children, he adds.

“It is how it is done within the family. Some farmers and landowners are better at handing over ownership and control than others.”

The lack of communication between the generations and the lack of clarity in their plans is a real area of concern.”

Although it can be difficult to do so, farming families should try to explore and resolve any differences, said Mr Mack.

“It is important to get succession right so it is fair for everyone – not just because of business issues such as tax efficiency.”

Successors were more likely to say succession planning was important to ensure the future of the business, remove family tension and enable the older generation to enjoy their retirement.

But owners felt tax efficiencies and a need to be fair to all children were more important.

Farming is not a birthright

The average age of owners was 57 and for successors 36, although 27% of owners were over 65 and 29% of successors were under 25.

Ensuring the future of the family business and tax efficiencies were the primary reasons for creating a succession plan. But farm owners often insisted they couldn’t afford to retire – and that potential successors lacked the right skills or weren’t interested in taking on the farm.

Some 36% of families pass the farm on to the eldest son regardless of other children.

Perhaps surprisingly, successors were more likely to believe the farm should be passed on to the eldest son, while owners were more likely to believe it should be shared between siblings.

Matt Lobley, associate professor in rural resource management at Exeter University, has spent more than 25 years studying ways of overcoming barriers to farm succession.

The traditional birthright of the eldest son was not necessarily the best way of handing on a family farm, he said.

“Passing on the ownership of the business should be separated from handing on the day-to-day running of the farm and its management.

“Deciding who will own the farm and who is the best person to manage it are very different issues – it isn’t always the same person.” 

NFU Mutual logoThis article is brought to you in association with NFU Mutual

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.