If you’re a young farmer who is in line to inherit your family’s business, taking the farm successfully forward into the next generation can feel overwhelming.
In this guide, we provide you with an overview of the many ways you can prepare yourself to run the family business, embrace new methods of working and protect the farm both legally and financially.
Open up conversations about succession
While talking about money and inheritance can be uncomfortable, it’s important to open up these conversations early on so that everybody’s expectations and positions are clear. Succession planning is important for any family business, but broaching the idea within farming families can be particularly difficult, with the current business owner often reluctant to relinquish control to a successor.
According to a study, less than a fifth of farmers plan to ever fully retire, while only half of those with children have identified a successor. Indeed the UK Government recognises this as a problem, to the extent that it has set up a new scheme to pay older farmers to retire, enabling the younger generation to enter, bringing with them new farming methods and breathing new life into the business.
Even if the current owner of your family’s business has no plans to retire, it’s still important to plan for the unexpected and to ensure that the legal and financial framework has been put in place to enable you to take over the business in the event of their death.
If your parents are unwilling to enter into these types of conversations with you, our rural legal specialists can help you facilitate positive discussions by explaining the benefits of succession planning and assisting with essential aspects of estate planning such as drafting Wills, providing Inheritance Tax (IHT) advice, introducing the possibility of making lifetime gifts and placing life insurance benefits in trust.
Key succession planning questions
If you’re unsure of where to start, here are some good questions you can use to open up productive conversations around succession and the future of the family business.
- What are your parents’ future plans? Do they plan to retire? If so, can you work with them and take on more responsibility so they are able to slow down in their later years? If not, is there another way for the two generations to satisfactorily work together in the long term?
- Who will live where? Does the farm have a number of properties which can accommodate the family? If so, try to have an open discussion with all family members about preferences for the future.
- What training and skills development do you need to undertake in order to prepare for succession? Your parents may be nervous to hand over the farm if they do not believe you yet possess the skills to take the farm forward successfully.
- It’s likely your parents will not want to split up the farm, so if you are in line to inherit, what provision will need to be made for your siblings, if you have any?
- How will your family’s land and business assets be passed down with the minimum Inheritance Tax liability?
- What role do you, your parents and your siblings want to play, now and in the future? Do your siblings want to be involved in the farm or are they happy for you to take it over? It’s important to nail the details down now to avoid conflict later down the line.
Draw up a partnership agreement
If the farm owner is not ready to retire, but you are still looking to take a more active role in the business in order to develop your knowledge and skills, you may wish to consider a Partnership Agreement.
Having a partnership agreement in place allows clarity regarding the ownership of business assets and enables families to clearly define the roles each partner will play in the day-to-day management of the farming business. Holding assets within the partnership can sometimes also be a useful tax planning tool.
Our expertise is in helping farming families draft comprehensive partnership agreements, and to advise on any issues that may arise in the duration of the partnership (for example, helping to handle disputes, or managing change within the partnership, e.g. if one of the partners leaves the partnership or dies).
Consider diversifying
Whether they want to or not, many farming businesses are having to diversify and find new and sustainable sources of income to ensure the farm’s survival in the modern era. According to Defra, 66% of farms across the UK have already diversified in some form to provide farming families with the additional income they need and support the rural economy.
This may take the form of using unused outbuildings to set up farm shops or professional services spaces, hosting tourism accommodation, or setting aside land for recreational uses, such as horse riding or golf courses.
Funding a new venture is often expensive, which can prove a barrier to successful diversification. In addition to commercial loans and private finance, you may be able to access funding from initiatives such as the Rural Development Programme for England, which provides money for diversifications that will have a positive impact on the environment.
At Tees, we regularly advise farming families on a wide range of diversification projects, ensuring they meet any new legal and regulatory requirements to which they may become subject in the course of their new venture – for example, planning permission, or the acquisition of special licenses or certificates.
Get familiar with new post-Brexit funding
The EU system of grants and subsidies to British farmers is being phased out from this year and replaced with a new series of Environmental Land Management schemes that reward farming businesses for the provision of ‘public goods’, i.e. implementing more sustainable farming methods or working to restore habitats and the environment.
Understanding the types of initiatives rewarded by the new system will help you guide the business in the right direction and enable you and your family to more effectively plan for the future.
They include (but are by no means limited to):
- Natural flood management measures
- Restoring habitats and environments
- Forest and woodland creation
- Opening up public access to the countryside
- Improving soil health
- Improving air and water quality.
More information about the post-Brexit Environmental Land Management schemes can be found here. The gov.uk website also gives an overview of other grants and payments currently available to agricultural businesses.
Take specialist advice
For many young farmers, the thought of taking over the family farm is exciting, but overwhelming. But you don’t have to do it alone. Our agriculture and estates specialists offer legal and financial services across a broad spectrum of specialisms, including Wills, Trusts, Tax & Probate, Corporate, Commercial Property and Wealth Management.
We have been helping farming families successfully transfer their business from generation to generation for over a century. For advice on planning for your future, don’t hesitate to get in touch.
