This article was first published in Farmers Guardian in October 2022 as part of a media partnership.
Many farms have been in the same family for generations with each generation hoping to pass on an enhanced business to the next generation. An exclusive survey conducted by Farmers Guardian and the CLA shows that while many farmers have thought about and planned how their legacy may look, there are many who have not and whose businesses could be at risk once they can no longer farm.
More than 500 farmers were questioned and while nearly 90% had identified who will take over the business, only 65% had made a will. Only one-fifth have made a lasting power of attorney, the legal document allowing nominated parties to make financial and health and welfare decisions. Jack Burroughs, private client and tax adviser at the CLA, says: “It is encouraging that two-thirds of those in the survey have made a will and one-third have a plan for succession in place, but that still leaves a lot of people who have done neither.
“I would advise anyone who has not written a will to do so as soon as possible. Writing a will is important whatever age you are, as it will make it a lot easier to decide what will happen to your assets if tragedy does strike.
“It can be especially traumatic for a younger family to cope with the legal issues when a loved one is lost and the lack of a will can make this all the more difficult. “The survey also showed that only a small proportion have put a lasting power of attorney in place.
“Again, these are very important documents whatever age you are, as they allow business and personal decisions to be made if the business owner loses capacity. In many ways, it is like insurance – you hope you do not need to use it, but you are glad you have the cover if circumstances mean you do need to use it.
“Farming can be a high-risk business where accidents can result in life-changing injuries and that is when legal and financial protection can be needed the most.”
Shying away from retirement
What was striking was that 21% said they do not intend to retire at all. A similar number said they expected to retire in the next 11-20 years. Given the major changes and challenges facing farming, it is surprising that only 5% said they intended to retire in the next year, although a further 16% may retire in the next five years.
Mr Burroughs says: “The fact so many farmers have no plans to retire may mean they love the job, but it could make it difficult for younger generations on the farm planning their own futures.” He welcomed that one-third of respondents have a plan for succession in place, but was surprised only one-third of those who plan to retire in the next five years have sought professional advice.
Mr Burroughs says: “The earlier you seek advice and put a plan in place, the more options you may have to secure the future of the business when you retire, pass on assets in a tax-efficient manner or build up capital to provide for non-farming children. Having said that, it is never too late to put plans in place.”
Handing onto the kids
Unsurprisingly, the majority (59%) expected to hand the business on to their children, with another 14% intending to give way to other family members – 6% to siblings, 3% to grandchildren and 5% other relatives. Retirement will prompt the sale of the farming businesses for 8% of those questioned. That should mean opportunities for new entrants or for other farmers looking to expand. There may also be opportunities for non-family members to get involved in the business in a few cases, as 2% plan to run it with a share farmer when they are not so actively involved. A similar proportion would hand the farm to a non-family member or restructure it.
Age and succession
The survey bears out the long-lived statistic that the average age of farmers is 57 years old. Nearly one-third of respondents were aged 56-65, with a further 24% older than that, while only 14% were younger than 35. Age has an impact on succession planning. Most of those with no succession planning in place (63%) were under 55 years old. Their youth and lack of children were the reasons that farmers under 55 gave for not putting plans in place.
Of those taking part in the survey, 71% were male, suggesting that farm ownership and business control is still largely male-dominated. Mr Burroughs says: “It is only natural that the older you are the more you think about succession, but a long-term succession plan involving multiple generations of the family can be very valuable and allow you to secure the business.
“Despite the figures showing that farming is still a very male-dominated business, we are finding more women are taking an active role in leading businesses and we expect to see a lot more women farmers in the future.”
Succession planning advice
The CLA offers a free succession planning service to its members. It starts with a questionnaire detailing the business, its assets, its ownership status, the family’s circumstances and what the member wants to achieve from the process.
Mr Burroughs says: “We then arrange a telephone call with the member and any other interested parties, such as children, they want to invite. After a full discussion, we put together a report detailing the succession issues the family faces and suggest some solutions. This can be used by the family or business in their succession planning or shared with professional advisers, such as solicitors or accountants.”
Mr Burroughs says that getting an outside party in helps the family to take an objective view of the issues it faces. Aside from discussions over who should take over the business and how assets should be shared, tax issues are one of the most important succession questions. That is reflected in the survey, with 59% of respondents saying they are concerned about tax issues surrounding succession planning. “Farming benefits from significant tax benefits, including Agricultural Property Relief and Business Property Relief. But planning is key to tax management. Get it wrong and it can be very costly.”
Wills may be the first documents that spring to mind when thinking about succession planning, but they are not the only ones.
A will should also be written with other business documents in mind. For partnerships, there should be a written partnership agreement which makes provision for what happens if a partner dies, becomes incapacitated or chooses to retire. If a company is being used, there would be company articles and ideally a shareholders’ agreement, which should cover similar points in relation to the directors and shareholders.
In either case, these documents should be reviewed and, where necessary, amended, to ensure that they fit with what has been decided as part of the succession plan. Farmers who rent land should also make sure to check their tenancies to see what will happen when they die or if they wish to retire. Where there are Agricultural Holdings Act tenancies, it is especially vital that preparations have been made to ensure the chosen successor will be entitled to take these on, where possible.
CLA advisory handbooks
LA landowning and business or professional members can purchase heavily discounted handbooks full of essential business and legal advice. One of these provides an in-depth practical guide to succession planning for farming and landowning families as they draw up or review a plan including advice on possible business structures, tax considerations and legal documents required to put a plan in place. Other handbooks look at partnerships and how to draw up a share farming arrangement. Find out more here.
CLA guidance notes
The CLA has several guidance notes which will help those planning succession. A recent one explores things to think about when making a will. It includes a detailed guide to this aspect of the succession planning process, including finding a lawyer, what topics you might want to consider in advance of meeting your lawyer and a checklist of what you should cover in your will. Other notes cover the tax aspects of succession planning, including whether your farmhouse qualifies for relief from inheritance tax.