I recently had the pleasure of exhibiting at an agricultural careers fair at Reaseheath College in Nantwich. Talking to the students and young farmers revealed just how many farmers’ children are looking at working outside of the family farm, even if only to gain some experience before returning home. The range of jobs on offer for those with an interest in agriculture is astonishing.
This got me thinking about succession and what happens to the family farm if there is a shift away by the next generation. When I last wrote on this subject for the Oakwood website it was June 2020. A time best forgotten as we were in the midst of lockdown and the world was struggling around us. Fortunately, that time is behind us, although we are seeing some legacy in the economy – changes in working practices, increased interest rates, higher utility and input costs. Obviously, the war in Ukraine and Brexit have contributed to these changes.
The fundamentals of farm succession have not changed, even if some of the details have. Having a plan to succeed is vitally important if a family farm business is to remain viable, or even if it is to be ended due to retirement. It helps if all those involved have some idea as to what they want to achieve. When will parents retire? If so, where will they live? How will they fund their retirement? Can the business actually survive? Is the next generation engaged in the business, or merely acting out of duty?
It is clear that the succession conversation has many challenges. It could take many years of planning for events to fall in to place. The important thing is to start the conversation early and be prepared to adapt. Farmers have a massive emotional attachment to their farms. Combine this with family issues (good and bad), onsite accommodation and, quite often, lack of previous documentation and there is a melting pot of potential problems. A family board meeting is a good way to start.
If the family agree what the future looks like, they need to implement it. Potentially more money (cash/profit) is required to support those coming in or retiring; how is that to be generated? Where is the family commitment to improving finances? Who is responsible? What are the risks?
From my point of view, the surveyor’s role is to look at the property assets within the family. Besides the farm, these may include other properties such as let houses or commercial premises. We will look at how the ownership is structured, do the properties add value to the business? Crucially there may be tax implications in respect of different classes of property.
Having alluded to tax, this is an area where expert advice is definitely required. It is well known that on death farms normally attract 100% relief from inheritance tax (Agricultural Property Relief). However, there are criteria that musty be met in order to ensure relief is available. Importantly it only applies to agricultural property; many families get caught out having let out buildings for non-agricultural uses. Letting out using a Farm Business Tenancy agreement can also obtain relief, but it has to be clear so documentation is always recommended.
We do often find that the tax tail wags the dog of practicality. Many farmers are intent to keep ownership (and trading) so as to preserve APR, without understanding the effect on their family and business.
Many farmers operate as sole traders or partnerships, but increasingly limited companies are being used; this is really a matter for the business accountant to advise on, but there can be advantages in having shares that can be moved around family members, especially “alphabet shares”. The tax regime needs to be fully considered and weighed against any pros and cons of managing the business.
It is vital that everything that happens within the business is documented so as to avoid future problems. Wills, partnership agreements and LPAs (lasting powers of attorney) are the starting point, but any third-party occupations should be documented. Whilst landlords and tenants may work amicably alongside each other for many years, the lack of written agreement can be a problem should a dispute arise or in the event of one of the parties losing capacity or dying. Where family members are employed, they are entitled to an employment contract (along with holidays, sick pay, pension, etc.) as with any other employee.
Family dynamics can often override practical and business considerations. External assistance may help in working through issues and creating solutions. Those involved need to be honest and transparent. The older generation may need to accept that the best option may be to retire and sell up (or let out), but that can be a very hard decision to make. Equally the younger generation may have to appreciate that the business is not sustainable and they need to look elsewhere. There are so many factors in play.
My own experience of agriculture is lifetime, forty years of which have been working professionally with farmers of all sizes. Myself and my colleagues are happy to have an initial chat about issues facing farmers, without obligation. We have a wealth of knowledge and many professional contacts who are specialist in their field. Let’s start that plan sooner rather than later.
Graham Bowcock MRICS MRAC
9th February 2024
