The importance of succession planning for the farming community
Having a succession plan in place will not only help to secure business continuity but also prevent a lot of heartache for loved ones, this is particularly relevant with farming businesses where often family and business are very much intertwined. For a start many farm properties include the family home and there will be family members who do not want to take on the family business but who you still want to benefit from a share of the assets.
What is Succession Planning?
Put simply, succession planning is about having long term plan in place for your business and not has many incorrectly believe retirement.
Why is it important?
For an individual business, succession planning can help to strike a fair balance between ensuring the business is passed to those who want it and providing a share of the parental assets for non-farming siblings.
Where to start?
Initially with a conversation, it is important to find out what each family member wants for their own future. This may not be an easy conversation to have but it is important that everyone in the family that might be affected is involved.
What should be covered in a succession plan?
- How the assets of the farm are owned
- Who is occupying the land and buildings and on what basis
- What each member of the family wants from the farm in the future
- What is the long term direction of the farm business
Understand the tax situation
There are two types of tax you need to be aware of:
- Inheritance Tax (IHT)– agricultural property relief and business property relief can help to reduce or eliminate IHT on farming other qualifying business assets.
- Capital Gains Tax (CGT)– giving away assets can trigger a CGT bill. It may be possible to claim Hold Over relief, which allows any immediate CGT to be deferred, with the person receiving the gift taking over the gain of the original owner.
Wills and Partnership Agreement
A key part of succession planning is making sure that all members of the family involved in the business have valid Wills and, where appropriate, a partnership (or shareholder) agreement is in place. This will ensure ownership of the business ends up where intended to avoid family arguments in the future.
Pensions and investments
Pensions can play an important part in succession planning. They can provide a source of income or funds to buy farmland and / or property or provide provision for children who do not wish to be involved in the business.
If you are considering putting a succession plan in place, please call 01793 342323 or email Frank.Collins@mogersdrewett.com we are here and happy to help.
