Succession planning for farming families can be stressful and complicated, so it’s important to have the right team onboard early to ensure business continuity and make sure family members who do not work in the business are also taken care of.

Farmers lead busy lives, but it is important to understand the implications of doing nothing to plan for succession, especially in the event of an unplanned transfer following the sudden death of the farm owner.

Farming families should seek expert advice from an agricultural solicitor, accountant, financial advisor and a trust and will solicitor, who should all be involved in the discussions around succession planning to ensure all documents align for a smooth transition.

Business structure

The key points to consider include the business set-up and, depending on what is most tax efficient for the family, whether the business is structured as a company or a partnership.

It is important to understand that partnerships will automatically end if there are less than two partners in the partnership and, in fact, some old partnership agreements may automatically end on the death of any partner, regardless of how many remaining partners there are.

Farmers need to put in place a solid agreement which deals with the death of a partner or shareholder to ensure business continuity and make sure shares or assets cannot be left to anyone outside the family or the business.

Where a partner may wish to retire, it is important the partnership agreement has a mechanism whereby they can withdraw from the business and be paid over time, to ensure this does not impact the financial stability of the business.

Wills

Wills, as far as possible, should provide fairly for family members to prevent claims against the estate and disputes.

This can be done by making use of a trust or by gifting different types of shares, or gifting assets not needed for the farm business, such as unused land or buildings, which could provide a place to live or be sold.

Farmers should also account for family members who are not involved in the business when they make a will. This is especially true if the majority of the deceased’s estate is the farmland and distributing this asset would jeopardise the future of the business.

Tax planning

An accountant is needed to advise on the tax planning element which is far more convoluted for farming families.

Farming families could consider lifetime gifts to their relatives, which requires a thorough understanding of the tax consequences of gifts, including capital gains tax, stamp duty, inheritance tax and of course a loss of income to the person giving away the asset. The issues around this are complex and there are lots of potential traps.

Agricultural property relief (APR) and business property relief (BPR) can be valuable tools in minimising the amount of inheritance tax payable on death and therefore need to be understood and considered when succession planning, particularly given the changes proposed in the most recent budget.

An expert team can also advise how farming families can pay inheritance tax when the money needs to come from assets which are used by the business.

This is a multifaceted and complex area, especially when there are multiple beneficiaries of a will, not all of whom are involved in the business, but with experts on hand it’s possible to find a practical solution which works for all involved.

By Louise Trist, Mayo Wynne Baxter Solicitors.

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