Tag Archive: Succession planning
Everybody appears to be talking about succession planning and it is all too easy to become numb to the advice which we are all getting from our bank managers, solicitors, accountants and land agents. Managing Partner, Robyn Peat, breaks it down.
So what is succession planning and why is it important?
The heading for this article could easily have been ‘A Stitch in Time Saves Nine’ however my heading ‘Planning for the Worst, Hoping for the Best’ cuts, I think, to the nub of the advice to have succession planning in place.
But why do we need it?
If you don’t plan for what you want to happen it probably won’t – that is to say what you want to happen will not, and when I say you I mean collectively; families, business, etc.
In terms of family business and generational businesses the key is who is going to end up with control of the business and secondly and possibly the same, who will own the business assets.
Families and farming families often find it incredibly difficult to in the first instance, be clear on who they want to end up running the business and owning it.
In these situations the unforeseen often occurs; no only interfamily strife, fighting and significant legal costs and stress but also the collateral damage of generational fall-outs and unforeseen tax bills.
So how can all of that be avoided?
- Work out how the family / the business is going to transfer to the next generations. The business may for example decide that for a number of reasons the plan isn’t that the assets are passed on to a member or a group of family members and everything will be sold and divided out or partitioned at a point in time. Whatever the decision this will probably be the culmination of a significant amount of discussion and preparation. It is in this process that a trusted advisor or someone coming in from the “outside” without any preconceived ideas or allegiances can help guide family decision.
- Remember that a equality doesn’t equal fairness. Sometimes depending on what the objectives are, assets should not be divided unequally. If a clear objective is that the farm will continue often if the assets are divided equally between all of the family members then there won’t be sufficient capital or a viable business. The guide needs to be a high level objective of say carry on the business or divide up the capital – rarely can both be achieved.
- Don’t let the tax tail wag the dog. Tax is really important and should follow the objectives rather than guide them. All too often schemes are set up to purely minimise tax but don’t actually achieve the objectives of the family.
- Do the detail. Once the headline is understood then the detail must be delivered and that detail often delivered by a team of advisors drawn is essential. There are many other key steps in the process however it is important not to over complicate the process. The essential steps are for example – what are the tax consequences of the plan and therefore values need to be scoped out and evaluated and how can the cash flow be managed and working capital raised – detailed business plans are required .
There are many tools at hand to balance the competing objectives of family members e.g.:
- Partition of land subject to overages to ensure a fair division of development value
- Payment of legacies
- trusts and company structures
Fundamentally however succession, planning is about avoiding unnecessary conflict and ensuring that what is wanted is delivered without unnecessary cost and conflict which is all too easily the outcome from a recipe of sibling rivalries, land capital and farming families.
Our Northumberland team is collaborating with NFU North East to update farmers, landowners and rural business owners on the many ways of unlocking potential in their business.
We will be covering:
- Minerals – what lies beneath your feet? (Mike Young)
- Succession and releasing the next generation (Louis Fell)
- A summary of Robert Moore’s Nuffield Scholarship (Robert Moore)
- Planning update – are you realising your development opportunities? (Craig Ross)
- Rural grants – what is available right now? (David Hume)
- Wednesday 14th March 2018
- Morpeth Rugby Club
- 17.30 arrival (18.00 presentation)
- Pie and pea supper provided
Please reserve your place by calling: 01904 451 550.
With formal discussions on how we exit the European Union now starting, now more than ever farm and land based businesses should prepare for the unexpected and plan ahead to mitigate risks.
Matthew Brown, a Rural Practice Surveyor at George F. White, said: “Tenancy succession planning is an important issue for farmers that hold Agricultural Holdings Act tenancies and their landlords. Most tenant farmers will be aware of succession and the role it plays in ensuring their tenancy has the maximum chance of being passed to the next generation however, the importance of getting it right is often underestimated with long-lasting consequences for future generations.”
Under many 1986 Agricultural Holdings Act tenancies, tenant farmers are within their rights to seek to secure succession of their tenancy, as long as the successor meets the relevant eligibility criteria.
Matthew continued: “This is what makes succession planning – in a timely manner – so vital. Succession is not automatic, or a given. Many farmers fail to plan effectively – rather they wait and deal with it when they’re ready to retire or the next of kin has to handle it in case of an unexpected death. Without preparation, the successor can fail to meet the criteria to succeed. If the process is started earlier and managed properly, this can be prevented.”
Succession planning is also important for landlords of tenanted properties as it means they can plan long-term, potentially benefit from significant tax reliefs and address any issues which may have been brushed under the carpet for years.
Tenancy succession planning involves many issues including assessment of income and livelihood, diversification, land outside the tenancy, financial position and experience. Therefore, it’s crucial that tenant farmers and landlords receive the right advice from the start.
Matthew added: “The law governing succession is complex. There is potential for disclosure and analysis of farm accounts and bank statements for seven years before succession, among other information. It really is better to act sooner rather than later to mitigate risk and allow both parties to plan for the future with certainty.”
For more information about succession planning and how to prepare, please contact Matthew Brown on firstname.lastname@example.org or 07854 903631.
Tenancy succession planning is a growing issue for farmers that hold a traditional Agricultural Holdings Act tenancy. I know most of you will be aware of it and the role it plays in ensuring your tenancy has the maximum chance of being left in the right hands however, the importance of getting it right is often missed with long-lasting consequences for future generations.
Under a large number of 1986 Agricultural Holdings Act tenancies, tenant farmers can be within their rights to seek to secure succession of their tenancy, as long as the successor meets the relevant eligibility criteria. This is what makes succession planning – in a timely manner – so vital. Succession is not automatic, or a given.
First things first
It is never too early to start the succession planning process because the criteria that the potential successor needs to meet is strict. A lot of preparation can be needed to ensure the person that you want to succeed can do so.
Many farmers fail to plan effectively, or at the right time – rather they wait and deal with it when they’re ready to retire or the next of kin has to handle it in case of an unexpected death. Without preparation, in many cases the successor can fail to meet the criteria to succeed. If the process is started earlier and managed properly, this can be prevented.
Seek the right advice
Tenancy succession planning involves many issues including income, livelihood, diversification, land outside the tenancy, financial position and experience, over many years. Therefore it’s crucial that you receive the right advice from the start.
It is also important to remember that in certain situations, succession can be an advantage for landlords and can be negotiated by agreement rather than through the First Tier Tribunal.
Actions that make good business sense at the time can have a detrimental effect upon the chances of succeeding. The law governing succession is complex. There is potential for disclosure and analysis of farm accounts and bank statements for seven years before succession, among other information.
In addition, ensuring fair treatment of other family members is important and should be considered alongside succession planning. This should involve taking advice from your solicitor and accountant to ensure all assets are passed in the most efficient manner possible.
From my experience, it really is better to act sooner rather than later. This reduces risk and when succession is secured, the business can plan for the future with certainty.
For more information about succession planning and how to plan well please contact Matthew Brown on email@example.com or 07854 903631.