For many farming families, succession planning is something that is talked about regularly but rarely acted upon.

Everyone knows it needs to be dealt with at some point, but there always seems to be a more urgent job to focus on. There is stock to tend to, crops to harvest, diversification projects to manage and day-to-day pressures to deal with. Before long, years have passed and nothing has been formally agreed.

The difficulty is that succession planning is not simply about deciding who inherits the farm when the current generation is gone. It affects the long-term future of the business, the relationships within the family and, increasingly, the amount of tax that may ultimately be payable.

The best succession arrangements are usually put in place long before they are needed. By contrast, some of the most difficult disputes arise where assumptions have been made, promises have been discussed over the kitchen table and expectations have developed without anything ever being recorded.

Why succession planning matters

Most family farms are more than just a business, they often provide the family home, the principal source of income and an asset that has been built up over multiple generations. As a result, succession planning can be an emotive subject, with decisions made today often having consequences for generations to come.

It is not unusual for one child to have worked on the farm for many years, often for relatively modest financial reward, whilst another may have pursued a career elsewhere. Parents may wish to treat their children equally, whilst also wanting the farming business to remain viable.

Balancing those competing objectives can be difficult.

Without proper planning, family members can be left with different expectations about what will happen in the future. In some cases, those misunderstandings are not discovered until after a death, when it is too late to clarify matters.

The risk of informal promises

Many farming families still rely heavily on informal arrangements. Comments such as “one day this will all be yours” or “the farm will pass down to you” are often made with the best of intentions. However, difficulties can arise where somebody has relied upon those assurances when making important life decisions.

For example, a family member may decide to remain working on the farm rather than pursue another career or live elsewhere. They may invest years of their working life into the business on the understanding that they will inherit it in due course. If those expectations are later disappointed, disputes can arise.

Claims of this nature are becoming increasingly common and can be both costly and emotionally draining for everyone involved. Frequently, the legal costs alone could have funded proper succession planning many years earlier.

It is not just about Wills

A common misconception is that succession planning simply means putting a Will in place. Whilst a Will remains one of the most important documents, it is only one part of the overall picture.

A proper succession review may include consideration of:

• Wills and estate planning
• Lasting Powers of Attorney
• Farming partnerships
• Land ownership structures
• Trust arrangements
• Tax planning
• Future management of the business
• Retirement arrangements for the older generation

These issues often overlap. A well-drafted partnership agreement, for example, can be just as important as a Will in determining what happens to farming assets.

Having the conversation early

One of the biggest obstacles to succession planning is simply starting the conversation. Many families worry that discussions about inheritance may create tension. In reality, uncertainty is often far more damaging than openness.

Families do not always need to make immediate decisions about every aspect of the future. However, it is usually helpful for everyone to understand the broad intentions for the business and the farm.

Open and frank communication can help identify potential problems before they become disputes and allows appropriate professional advice to be obtained at an early stage.

Tax considerations

Tax is often a significant factor in succession planning. Recent changes and ongoing discussions around Agricultural Property Relief and Business Property Relief have encouraged many farming families to review existing arrangements.

Every family situation is different and there is rarely a single solution that works for everyone. What is important is ensuring that any succession plan is reviewed regularly and remains appropriate for both the family’s circumstances and the wider business.

Advice should be tailored not only to current tax rules but also to the long-term objectives of the family and the business. Tax legislation and reliefs can change over time, and what was appropriate a few years ago may no longer be the most effective approach. Regular discussions with your accountant can help ensure that the business is making the most of available opportunities and that its structure remains aligned with both succession plans and current tax policy. If these arrangements have not been reviewed for some time, it may be sensible to speak with your professional advisers to ensure nothing has been overlooked.

Planning for the next generation

A successful succession plan should do more than deal with ownership after death.

It should also consider how responsibility and decision-making will be passed on over time. For many farming businesses, a gradual transition can be more effective than a sudden transfer, allowing the next generation to become increasingly involved in the day-to-day management of the farm.

A written partnership agreement can be an important part of that process. It can help formalise the involvement of younger family members within the business and provide a clear framework for how the farm will be managed moving forward. Many farming partnerships still operate on the basis of verbal understandings or historic arrangements, but a properly drafted agreement can help ensure that the business structure supports the family’s succession plans and reduces the potential for misunderstandings further down the line.

It also gives the family an opportunity to identify any issues early and make adjustments before they become more difficult to address.

Don’t leave it too late!

Succession planning is rarely a one-off exercise. It often requires input from your accountant, solicitor and land agent, all of whom can help ensure that both the future of the business and the family’s wider objectives are properly considered. Families change, businesses evolve and legislation develops over time, meaning that succession plans should be kept under regular review to ensure they remain fit for purpose and continue to reflect the family’s intentions.

The most successful succession plans are usually those that are discussed early, reviewed regularly and properly documented.

At Thomson Hayton Winkley, our Rural Law team regularly advises farming families on succession planning, partnership agreements, and land ownership structures. Early advice can provide clarity, reduce uncertainty and help ensure that the next generation inherits not only the assets, but a plan that allows the farm to continue successfully into the future.

If you would like to discuss succession planning for your farm or rural business, please contact our Rural Law team – we will help you to start having those conversations.

 

This article is for general information only and does not constitute legal advice. The legal position will depend on the  the circumstances of your situation.