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SUCCESSION PLANNING A guide to planning for the future, from

Inside your succession planning magazine

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Tips on starting the conversation with your family Five typical pitfalls to avoid when making a plan

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Common succession scenarios to prepare your family for ‘We want to be financially secure when we retire’

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Family focused on getting next generation started Important tax considerations for your farming family

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Starting the conversation

Many farming families struggle to talk about succession and the conversation never really gets anywhere until one day it is too late. We asked Heather Wildman, family facilitator and managing director at Saviours Associates, for advice.

Succession: Starting the conversation T he earlier you start discussing succession, the greater the number of options availa-

ble to you. Starting early will also ensure everyone in the family knows what to expect and can make plans accordingly. This means being open and honest as soon as possible: Think ahead and share what you’re thinking so everyone has time to plan. You only have one life, so what do you want to do with it?

Heather Wildman

How to get your family to talk

It’s all about timing, tone and language. You know your family members so you will know when is a good – or a bad – time to broach a tricky subject. Your dad might be most open on a Sunday night after he’s had dinner and a beer, or perhaps in the car on the way to market, for example. Avoid doing it when people are tired or cranky, though. Another opportunity is when

Key things to think about and discuss when planning

THINK about what you want and how you feel before sitting down together. Start by asking these questions: When will succession happen? Does the older generation have a specific retirement age in mind, or will it be on death?

Who will succeed to the farm, or will it be sold? How will all the children be treated fairly? What money will you have/need? What are expectations for retirement: financial, housing, walk away or stay on the farm; helping out part-time?

How will the older generation avoid crippling the successor with farm debt? How will you continue to communicate regarding succession as time goes on? How will you transfer management and ownership? Will the process be planned and controlled or left to fate?

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Starting the conversation

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While talking about succession can be difficult, families who start doing so early have the most options and control.

a third party visits, such as the farm’s accountant or business adviser. Asking to talk about where the farm is going can be a way to start the conversation. Someone entering the business is an opportune time too – perhaps a school leaver is starting in some way, or there is a marriage. Also consider who in the family is good at bringing people together. Often, the mother is the key person to sit everyone down together – so talk to that person. Understand individuals’ feelings and needs. This is key to breaking down walls as emotion plays a huge part in decision-making and in action or in-action. Try to find out why someone does not want to talk, or is being defensive. Approach this in a caring and respectful way which acknowledges what they contribute to the business.

Understand individuals’ feelings and needs. This is key to breaking down walls as emoon plays a huge part in decisionmaking HEATHER WILDMAN

For example, you could say; ‘I’m so proud of what you’ve achieved, we would be shattered if something happened to you – can we talk about this and make sure we have provisions in place’? Or ‘Dad, I’ve asked a couple of times about

succession and I can see it upsets you and you shut down the conversation – I’d like to know how you feel and how we can talk about this’. Often though, it’s a case of being patient and drip-feeding until someone starts to open up.

Possibilities

Once you do get people round a table, try to take the heaviness out. For example, decide you’re all going to make a fun evening of it with food and drink and have an open brainstorming session where you talk about possibilities, dreams and ideas, rather than old disagreements. Remember to keep the bigger picture in mind – the long-term future and happiness of you and your family is paramount. Being aware of what everyone wants and their hopes for the future is key – the ongoing success of the farm may be part of this or perhaps selling up will be the best option.

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Succession pitfalls

Farm succession planning can be a thorny issue, but most mistakes are avoidable with openness, communication and good planning, says Laura Teasdale, associate and family facilitator at Kite Consulting.

Five typical succession pitfalls to avoid 1

Leaving everyone in the dark until death

Laura Teasdale

THE death of a family member is not the time to be talking about succession as people are more inclined to make snap decisions based on emotions. This can lead to disputes and conflict, distress for any surviving parent and no-one getting the outcome they want. Keeping things under wraps until death means children find out for the first time what they will and won’t get – potentially with nasty surprises. This could leave them in a financial situation which is different to what they were expecting or what they would have planned if they had known. Develop a succession plan early through open discussions with all family members.

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Not involving the whole family

PROBLEMS occur if communication breaks down or does not happen to start with. For example, if the parents decide who is taking over the business and then stop including other family members in discussions.

Consequences

The consequences of not involving all children/ siblings is that they feel excluded and what might start as a very small issue can quickly become an area of conflict. Having partners of siblings/children in a meeting can often provide good balance, as they generally don’t have the same emotional ties to the farm. Different opinions and experiences can offer new perspectives and ideas.

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Succession pitfalls

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Failing to get the whole family talking about things early enough

THIS can significantly reduce your options. Make sure all family members understand this and agree to work through issues to achieve agreement. It is much easier to plan financially for splitting a farm or having different enterprises on the unit when siblings are

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When it is not ‘your’ plan

UNLESS everyone is agreed on the plan it is likely to fail. It should be the family’s plan – not the facilitator’s or accountant’s. Ensure everyone has had their say and find areas where there is agreement to build on. Accept different things are important to each individual.

in their 20s and 30s rather than their 50s and 60s.

Skills

If you have children who want to farm, think about what skills and qualifications they might need and start discussions early.

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Begin planning as soon as possible for retirement – this will avoid the older generation being a drain on farm resources, impacting its viability for successors. Death, divorce and incapacitation should also be discussed.

Thinking everything has to be equal to be fair

IN many cases, it is not possible to divide the farm assets equitably if one or more of the children want to farm and others do not, and leave the unit viable. Think about the value of things beyond money. Family homes and farms have strong emotional ties,

so selling up in order to divide things equitably does not always result in benefits beyond money.

Roles

Acknowledge the roles different members of the family have had in the business – not all are paid.

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Common scenarios

Every family is unique and so what works for one might not for another. Knowing what the different possibilities are and talking them through is what matters. We spoke to Kite Consulting for advice.

Common succession scenarios to consider

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nsuring the ongoing security and stability of your family should be at the core of any succession plan, says Laura Teasdale, associate and family facilitator at Kite Consulting. She says: “At the start of the meeting we put a chart of the family tree up in front of everyone to remind them that whatever happens they are linked together as a family.” Consultants at the company, which has been running succession workshops for young farmers on The Co-operative supermarket’s ‘Pioneers Programme’, then spend time asking family members questions and

trying to draw out any elephants in the room. “Talking things through as a family as early as possible, is critical to good succession planning,” says Laura. “People really struggle with unknowns.” Here are the most common scenarios and what you can do in each situation, and for more information on the tax implications, turn to page 16. Handing over the farm to the next generation before retirement

This model can work nicely if the parents and successor gradually align, with the parents slowing down and doing less

Talking things through as a family as early as possible is crical to good succession planning LAURA TEASDALE

work, while the child takes on more responsibility. What does not work, says Laura, is if the successor is treated like a worker and not given any autonomy or responsibility until one day the business is suddenly handed over. “It can be really stressful and overwhelming for that person,” she says.

Knowledge

It is important to consider who will perform any bookkeeping after succession.

Doing things gradually over many years allows the younger generation to develop skills and knowledge, while having the back-up and experience of their parents. The older generation benefits from a more phased retirement.

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Common scenarios

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While successors will often be glad to receive advice, it is important they are given their own responsibilities.

Skills which are lacking can also be identified early. “You might find Dad is good at bookkeeping but the son is not, so then you might decide Dad will continue to do the books after retirement, or you might get in professional support,” says Laura. Problems can occur when either party is not ready for the handover – this is where talking needs to happen. For example, if parents are anxious about handing the whole farm over in one go, this could happen in phases.

Lifestyle consideration need to be taken into account too. If retired parents want to stay in the farmhouse, this will need to be discussed.

Property

Similarly, if they move, tensions can arise when the child and their partner moves in and want to change the property. Talking about what is and isn’t okay is important. Having that conversation early and setting a rough date many years in the future will help everyone prepare.

Bringing the next generation in as partners to the business

Often, this means leaving the transfer of assets until the death of the parents, while handing over the management of the business to successors. While this can have tax benefits and protect the farm from division, such as in the case of divorce, it can leave many unknowns which cause stress and disruption for those left behind if plans aren’t talked about openly early, warns Laura. Essentially, successors and non-farming family members

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Common scenarios

need to know what they will and will not inherit well before the reading of the will. This will avoid negative situations and shocks, such as where someone has worked their entire life in the business, only to find the farm is divided equally with those who have not. If everyone knows what will happen they can plan their finances and lives accordingly. Another consideration is timing and how beneficial, or not, it will be for the successor to wait so long to take over the assets. If a farmer dies at 80, their child might be coming up to retirement just as they succeed their parents, by which time they might want to be passing the business to their children, says Laura.

While many tenancies have a right to succession, these are not typically automatic, says George Dunn.

Tenancies and succession

Responsibility

This need not cause issues if the succession is well managed and children who are partners in the business are given enough autonomy and responsibility to make their mark on the business – and know what they will inherit at the end. Retiring with financial independence from the farm

Parents who base their retirement plan on the farm continu-

Rerement shouldn’t be a surprise for anybody

LAURA TEASDALE

ing to provide for them, can risk making the business unviable for their successors. To avoid this, start by working out what people are going to need, want and expect on retirement, including the kind of lifestyle they want. Then the conversation needs to be had on where that money will come from. For example, it is quite common for farming businesses to continue to pay power, fuel and heating costs for retired parents, but should it also be expected to pay for a new car? Should non-farming children, who are

FARMING tenancies have their own set of rules to consider. Knowing these and planning accordingly is key, says George Dunn, chief executive of the Tenant Farmers Association. Not all tenancies have a right to succession, so check your legal status before doing anything. Those that don’t hold a legal right include Agricultural Holdings Act (AHA) tenancies post-1984, county council smallholding tenancies, and Farm Business Tenancies (FBT) since 1995.

Criteria

Be aware that even if your tenancy has a right to succession, this is not automatic and there is a set of criteria that must be met. This includes; that the successor’s

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Common scenarios

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George Dunn

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with your landlord and have discussions with them well ahead of time. Identify who the successor(s) will be and get professional advice for how to put a plan in place. There are no guarantees, but those who have thought about it and planned it early, are most likely to succeed. Be aware of the important deadlines:

to take over the tenancy. Which option you go for is up to you, but planning things properly so there is a tenancy handover on retirement, is much more likely to go smoothly than waiting until someone dies. It is important, however, to plan for an unexpected death, so get a document ready in case you need to make a sudden application.

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Relationship

Succession on death:

An application for succession must be made within three months of death. Otherwise, the right to it is lost forever.

principle livelihood has been derived from the farm for a certain amount of time and that they are suitably qualified and skilled to run a farming business. Succession on retirement: Normally, this is decided by Once the tenant has issued the landlord, but if issues arise a notice of retirement to their then it can be decided by a landlord, the successor has one succession tribunal. month to make an application Foster a good relationship

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Many tenancy successions are agreed with landlords, but even if you have a great relationship, it is still worth having a document ready for a tribunal should things turn sour and you need the backstop. Maintaining good relationships with your landlord and planning ahead with good communication is the best approach.

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Common scenarios

receiving rental income on a property gifted to them, be expected to contribute? Have these conversations early and start to make financial provisions, says Laura. “Retirement shouldn’t be a surprise for anybody.” Financial planning could include; putting drawings into long-term savings and pension pots; investing in insurance policies that pay out on retirement; and investing in property that will provide regular rental income. Where there is no successor, a farm can act as a pension pot if farmers are prepared to sell, or let the unit. But debt needs to be taken into account. Always get professional financial advice early on, says Laura. Providing for both farming and non-farming children

The options available in this situation depend on the farm business and assets involved. Grown-up children tend to be emotionally attached to their family farm and so do not normally want to see it broken up just so they can get their share. Even something simple like being able to keep a pony in a paddock, or have a family heirloom, can go a long way to making non-farming children feel they are not left out. Ask everyone what they want, says Laura, and be aware of the language you use: Starting off by saying ‘I want half the farm’, is unlikely to lead to constructive discussions. Often, the best thing is for the parents to make the decisions, rather than leave it to siblings to sort out. For example, parents might

decide that the child taking on the farm needs to pay out their non-farming sibling, or give them a property.

Options

There are countless options available when trying to provide for non-farming children. These could include: Give them a fixed asset: For example, a field or block of land they can rent out or sell off. You may want to agree that the farming sibling has first refusal. Invest in property: This

could be a property the child lives in, or one that they get rental income from. They could also be given a plot of land to build on. Develop a diversification business: This could be a business they end up running, or one that they inherit. Leave them a sum of money in your will or an insurance policy that pays out on death: Consider though that this might come later than when the child could benefit most, for example in their 20s and 30s when

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Common scenarios Building a plan which provides for family members who do not want to farm or are too young to do so can avoid a lot of family heartache.

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want to do. They might develop careers outside farming, or the farm might be able to help them build a diversification business alongside. This could include allowing them to use farm buildings. If they want to farm, consider how the farm business could help with a tenancy; perhaps it could share machinery or give them a few head of livestock to start them off. What to do when there is no successor

Not having a successor is becoming increasingly common as children choose to work outside farming.

Equity

they want to start a business or buy a property. Pay for things to help them get started: This could be university fees, or a house deposit. Different future scenarios need to be considered and agreed upon also. For example, what would happen if the successor sold some or all of the assets? Should they be able to cash in all the money just because they inherited the land and leave their sibling with nothing? Should the non-farming child

be able to gain if their sibling has improved the value of the property? Should this money be ploughed back into the business or used to buy a property for the sibling? What if the farming business needs that money to survive a rough period or pay off debt? When there is only room for one successor

“This is the really important one to sort out early on,� says Laura. This will allow children to think about what else they

If you find yourself in this situation, try to decide on a date for when you want to stop working and consider these: Taking on a share farmer, who could gradually build up equity in the business. Selling the farm and assets and using some of the money to help your children in other ways – perhaps with a house deposit or a business. Getting a contract farmer in to continue farming the land for a period. Leaving all or part of the farm to a long-standing worker who could take on the management and responsibility. Whether there are other family members who could be your successor, such as grandchildren or nieces or nephews. Whichever route you take, involve children in decisionmaking, always have open communication and employ professionals with rural expertise, advises Laura.

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Case study

Dairy farmers Bryony and Robert Symms are planning carefully to ensure

their

‘We want to be financially s

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he Symms family has long recognised the need to plan the succession of their farm. Jake Symms, 22, says: “Mum and dad have planned what they’re doing. You hear a lot of stories and they don’t want us to all fall out over a bit of land.” Jake farms with his mum, Bryony, and dad, Robert, near Sherborne, Dorset. He’s gradually taking on more responsibility on the 220-head dairy unit so that he’s prepared when he takes over the business and assets when they retire in 10 to 15 years. The development of Jake’s skills and responsibilities – which currently include breeding, feeding and costings – are part of a well-managed, progressive plan. Bryony says: “We’ve very much got an eye on the future in

Family facts

220-head dairy unit in Sherborne, Dorset Son farming with parents who plan to hand over business and assets in full on retirement Increase in responsibility/ skill development is gradually preparing him Parents will be financially independent on retirement Provisions, such as insurance policies, are being made for three other children

Left to right: Robert, Chloe, Bryony and Jake Symms.

terms of what Jake’s going to have to be able to do once we’re no longer here or working.” For example, Jake is gradually taking on more responsibility for the milking and has been on an artificial insemination course, since Robert has always done these two things. He’s also been part of The Co-operative supermarket’s Pioneers Programme for young farmers, where he has been developing skills like business management. The importance of financial planning

Bryony and Robert are determined to be financially independent when they retire and Jake will lose a significant part of the farm’s workforce. “In farming in particular, people think ‘our farm will be

It would be so stressful if I didn’t know what was going on or whether I’d have a business to work on in the future JAKE SYMMS

our pension’,” says Bryony. “But two years ago, our solicitor did a talk about succession planning and it really made us think about the fact Jake would need to able to pay other people and himself

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Case study

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their son, Jake, is ready when he takes over the business one day.

lly secure when we retire’ Bryony and Robert are keen to help Jake develop his practical skills on-farm.

Jake and Bryony’s planning tips

– not us as well. We’re trying to throw as much as possible into our pensions,” says Bryony. “We’ve got a very good accountant and an adviser came recently to talk about pensions, including Jake’s.” For their three non-farming daughters, the couple have set-up pensions and insurance policies, which will pay out on their death, and they’re considering giving them a piece of land which they can let to Jake. Be open and honest

Having all of this out in the open, is really important, says Bryony. “We’ve tried to be as open

about it as possible, discussing it with them all as we go along. We’re very upfront about plans so they don’t think something else will happen.”

Freedom

Knowing what’s happening and that he will one day take over the farm gives Jake the freedom to plan what he wants to do with the business – such as improving the genetics of the herd or investing in robotic milking – rather than waiting 30 years. “It would be so stressful if I didn’t know what was going on or whether I’d have a business to work on in the future,” says

Make fair provisions for non-farming children Be open, honest and willing to answer questions Plan finances so you are not a drain on the farming business on retirement Invest in pensions and insurance policies as early as possible Prepare successor through skills and increasing responsibilities

Jake. “Mum and dad are very supportive – if I ask a question they’re more than happy to let me know the answer. They’re both very proactive at saying what’s going on.”

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Case study

The Hammond family keeps 520 beef cattle and 580 sheep.

The Hammond family has had an ongoing and open succession plan for approach which has allowed the younger generation to develop and

thre expa

“Succession is about le tt the younger generation g

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or as long as he can remember, Powys farmer Stuart Hammond says planning has been a core part of his farm life. “Ever since I could walk I was being taken to meetings with the bank manager,” says Stuart.

Stuart’s succession tips

Get as much advice as you can from people who have been through succession and professionals, such as accountants, the NFU and advisers It will be a long process. But keep going back to it and updating it as things change Keep the process moving forwards. Perhaps there is

The 35-year-old mixed farmer is the third generation of his family to farm near Llandrindod Wells, Powys, thanks to well managed and ongoing succession plans which began with his grandparents. Stuart and his brother Eddie

someone in the family who can take the lead in driving it Have a third party in complicated meetings. Our accountant attended meetings about splitting up the farm If it is difficult to talk about, feel your way into it a bit and do not attempt a conversation when everyone’s tired and grumpy

farm 364 hectares (900 acres) in partnership with their uncle Malcolm and their mum Sharon, who both own 50 per cent of the business. As well as arable land, they have 520 beef cattle and 580 sheep.

Diversification

Quackers, a children’s play business, was started as a diversification in the 1990s and is managed by Sharon. This will be inherited by Stuart’s sisters, who work outside farming, while the farm will be inherited by Stuart and Eddie. Their other uncle now farms separately with his share of the farm, having split off several years ago more independence. Sadly, succession plans for Stuart and Eddie were accelerated by the early death of their father

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Case study

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Left to right, back row: Callie, Stuart, Sharon, Edward and Nicola holding Toby Hammond. Front row: James and Aiden Hammond.

Family facts

three generations, an expand the business.

le tting on get on” Michael. Stuart is all the more keen to start conversations early with his own children, currently aged eight and six. “It’s a complex thing, succession,” he says. “But sticking your head in the sand isn’t going to help. We’ve always talked about it and there have been difficult moments, but we’ve always come to an agreement.” Succession planning should always involve the younger generation, says Stuart. “I’ve got a fair bit of drive and I want to push things forward. Succession has always been something in our family that has allowed the young to get on.” Sometimes this means pushing though, so things can progress; the brothers started a poultry and energy business, although

I’ve got a fair bit of drive and I want to push things forward

STUART HAMMOND

not everyone was convinced it would want. “Dad was dead against the poultry business. He said to the solicitor he was a ‘conscientious objector’, but it’s always been my attitude that the younger generation has to drive forwards.”

Starting early

Being taken to farm meetings with the bank manager or accountant from an early age really helped with his understanding of the farm and business, says Stuart. Not involving children in this way can limit them, he adds. “When I was 16 at college I was

364 hectares (900 acres) arable, sheep, beef cattle business, farmed in partnership between brothers Stuart and Eddie, their mum Sharon and uncle Malcolm Stuart and Eddie are salaried partners and will inherit the farm from Sharon and Malcolm who own 50 per cent each Poultry and energy businesses started by Stuart and Eddie, with shares split between them, Malcolm and Sharon Children’s play business diversification is run by Sharon and will be passed on to two daughters

in a farm business lecture and I remember a friend who had grown up on-farm but didn’t understand much of the lecture. He said his dad had sent him out of the room every time the bank manager came round. I was shocked.” Not embracing the younger generation stifles innovation and the success of a business, believes Stuart.

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Tax planning

Boring but essential: Factoring tax considerations into succession plans is paramount to avoid nasty and expensive surprises, says Gary Markham, Land Family Business’ director of farms and estates.

Get a grip on tax

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uccession planning can take a wide variety of routes, each with their own set of tax considerations. Broadly speaking, there are two main options, which themselves can have many variations depending on circumstances:

Common tax traps

Retain all assets until death

Farm assets are not passed on until the older generation dies. Successors are often brought into the business through a partnership agreement, allowing parents to keep control of assets but release the management of the business. There are several tax advantages of this model: Inheritance Tax (IHT) can be planned for during the owner’s lifetime. Also, if assets are revalued when someone dies, a free uplift means there is no Capital Gains Tax (CGT) to pay if the asset is subsequently sold. Furthermore, the farm can own let properties, which receive 100 per cent tax relief. These can be used by the business or to provide for non-farming children in a will. There is a possibility IHT would have to be paid, but currently an individual can pass an asset worth £325,000 to their children without them having to pay IHT. This is double for a married couple, including if one person has already died.

It is essential, however, to ensure all paperwork is consistent, including your partnership agreement, annual accounts, will, and a share agreement if the business is a limited company. Use the same lawyer for each and ensure they and your accountant are rural specialists. Not clearly showing who owns what is the biggest mistake you can make. Gift your assets while you are alive

An outright gift will have an element of risk in terms of CGT and also potential divorce. However, it is possible to gift certain assets, such as let buildings, into a trust or to an individual. For tax purposes, those assets in trust are considered to be outside the individual’s estate when they die. The trustees, which often includes the previous owner, decide when the owner-

Parents gifting land and/ or a house while still farming and living in the house. From a tax perspective, the parents have not left and the farm and children could suffer IHT. To avoid this, parents can reduce their profit-share in the land and pay the successors a commercial rent Not ensuring paperwork is clear and consistent about who owns what. Millions of pounds are paid every year in ownership disputes Not managing expectations early on so people can plan their taxes and life accordingly

ship of the asset is released to the next generation. As long as the asset is worth no more than £325,000 there is no IHT to pay and CGT can be held over into the trust. This can be an effective way to gift a property, for example, to a successor where a parent is worried who they might marry and how they would retain the asset, should that relationship end.

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