Planning for the next generation of estate owners

We asked respondents about their hopes, fears and expectations for the future of their estate.

Despite the clear importance of succession planning to the effective transfer of estates to the next generation and their long-term viability, almost half of owners who responded to the survey (42%) do not currently have a plan or process in place to prepare the next generation to run the estate.

Taken together, this equates to more than £300 million of combined estate value which is potentially facing an uncertain future. This of course raises many questions and concerns. Planning will mean something different for each owner and there may well be valid reasons as to why an official plan hasn’t been solidified.

No current plan or process in place

However, it does raise significant concerns and questions regarding the implications if something unexpected was to happen to a current owner:

Have the correct legal and financial structures been put in place?
What does day-to-day management look like?
Is there anyone suitable to immediately help run the estate?

The purpose of a succession plan

For most estate owners (56%), the primary purpose of a succession plan is to mitigate the exposure of the estate to inheritance tax (IHT). With IHT liabilities rising to record levels, reaching almost £6 billion in 2020-21 (HMRC) and frozen allowances continuing to increase the number of estates facing IHT bills, this is unsurprising. However, some may be surprised that IHT mitigation doesn’t factor as a primary succession plan consideration for many of the estates we spoke to. Succession planning is, in many cases, much more focused on other factors including long-term resilience, family cohesion, preservation of both family assets and values, and minimising the risk of dispute

Intriguingly, 31% of estate owners are unaware of Conditional Exemption from IHT, including some of those who reported that reducing exposure to IHT was the primary function of their succession plan. This relief is an important part of tax planning for many estates, and our survey suggests a general lack of understanding or appreciation of its potential application remains, although it is a relief which does need careful consideration before claiming.

A direct quote from a respondent in our 2005 survey. The context is still relevant today:

“Succession is not just about money, or even wealth, it is about passing on the baton from one generation to the next and, where substantial assets are concerned, it is not only the ownership which changes hands, but the management of those assets, which may be important to the wider community as well as to those directly involved.”

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