Making a success of succession
Although succession can be a difficult and thorny issue for many farming, estate and rural businesses, failure to plan properly can have unexpected and potentially catastrophic consequences, for both the business(es), and the individuals involved.
Why is it important to plan for succession?
It’s estimated that around two thirds of family farming businesses currently have no succession plan in place, and with the average age of the UK farmer around 60 years old (and increasing), the issue of succession has therefore never been more important.
A study carried out in 2020 by the University of Exeter revealed that only one in five farmers planned to retire in full.
That same research found that over a quarter of farmers had not spoken about succession planning with anyone at all, and that of those with children, only half had identified a potential successor.
Through having a formal plan, succession can happen in a controlled and defined manner, at the right time and in accordance with agreed principles. That is rather than, in a true worst-case scenario, overnight on the death of the incumbent and under the intestacy rules where the deceased has no will in place.
Top tips when planning for succession
The most important consideration is to have a clear and understood long-term plan for the business, with a timescale that everyone is working towards.
An understanding of what the assets are, who owns them, what they are being used for and by whom is critical, as well as knowing what each family member’s needs and wants are. The issues to be considered in planning for any succession will clearly depend on the specific business scenario and family dynamic.
Our top questions for consideration in developing any succession planning strategy are:
What do the relevant members of the family need and want from the business?
Are the identified successors on board and do they have the necessary skills and experience to take on the business and run it in the future?
What part will individual family members play in the business in the future and how will their roles change? Is everyone being treated fairly?
Where is the business heading in the future?
What are the assets, who owns them and what are they used for?
What reliefs might be available for Inheritance Tax (IHT) and Capital Gains Tax (CGT), for example Agricultural Property Relief (APR), Business Property Relief (BPR) and Holdover Relief?
What is the likely timescale for succession?
How will any retiring family members fund their retirement and where will they live?
How does the succession plan fit in with the wills of the family members?
Which independent professional advisers should be engaged to advise and help with the process?
Final thoughts
It’s all too easy to get consumed by the day job and neglect the future of the business. A succession plan should be made as early as possible; the earlier a plan is devised, the more effective, flexible and easier to implement it will be.
Far too often, conversations around succession are left until the incumbent is close to retirement, which leaves little time or scope to plan properly.
Discussions around succession can be highly emotive and stressful. Open and honest discussions, involving everyone, considering all parties’ needs and making sure that everyone is being treated fairly, can help avoid conflict and generational divide. Engaging the younger generation, with their energy, enthusiasm and ideas can reap rewards for the business. It’s critical to involve all of those affected in the planning process as appropriate.
Start with the endpoint in mind, formally document the plan to get there, and get agreement from all involved.
Once the elephant in the room is acknowledged, an engaged family can focus on the growth and development of the business together, with a renewed vigour.