For many farmers, succession planning remains a difficult conversation to have. As a result, it is all too often placed on the back burner, sometimes for many years, until due to ill health or age related decline, it can no longer be avoided.
Or, in the event of a sudden death, no succession planning is in place at all, causing extra stress and worry for the remaining family at an extremely difficult time.
Neither of these situations are ideal and can easily be avoided if the issue is discussed in a timely manner. To help facilitate this challenging but vital conversation, we have produced our summary of what succession planning involves, to help guide farming families through the process.
Key areas to consider
Before starting a conversation around succession planning, there are some key areas that need to be considered. We feel the most important include:
- Is the land you farm owned or tenanted? If tenanted, on what type of lease?
- Who owns the assets of the farm?
- What direction do you see the farm taking going forwards?
- How will each family member be involved in the farm/farming operations in the future?
- Do you plan to diversify away from general farming activities?
Understanding these points will enable you and your advisors to better understand what you want to get out of the succession planning process and put a plan in place to achieve that.
It is also important to understand the tax implications of succession planning and ensuring that you receive the right advice. The two key taxes to consider throughout this process are Capital Gains Tax (CGT) and Inheritance Tax (IHT).
CGT is likely to be involved if you plan to give away some of the farming/business assets to the next generation whilst you are still alive. However, much of this CGT can be deferred by making appropriate claims for Holdover Relief so it is important to receive expert advice before doing anything, to ensure it is carried out in the most tax efficient way possible.
IHT should not be a major issue so long as the correct planning is done at this stage – another reason to address succession planning sooner rather than later.
Agricultural and Business Property Relief ensures that the farm and other business assets can be passed on to future generations without significant tax liabilities being payable, so again, it is important to work with an expert on this, to ensure everything is correctly put in place.
Once you have completed your succession planning exercise you should be able to tick the following boxes:
- Your Will has been updated to tie in with your succession plans and every family member involved also has one.
- You have planned for the practical issues such as payment of any tax liabilities, your retirement income and housing needs.
- You have agreed with all family members concerned the timing of the handover so that there are no hidden surprises.
- You have communicated your plan to all external stakeholders of your farming business such as the bank, suppliers, and your customers.
- Any partnership/shareholder agreements are consistent with the family’s wishes and Wills.
At Whitley Stimpson, we understand succession planning can be a difficult topic to raise within a farming family and that putting it to one side for another day can feel like the easier option.
But this approach rarely works out for the best and with a robust plan in place, all family members can sleep more easily knowing that when the time comes, the transition of the farm across to the next generation will occur in an efficient and worry-free way.
Our experienced team can take you through this difficult process in a sensitive and respectful way. To discuss succession planning for your farm, get in touch with Ian Parker on 01295 270200.