A storyline on BBC soap The Archers has highlighted the importance of succession planning for owners of family businesses, particularly farming businesses.
The storyline centres around Brian Aldridge who is fretting about the future of Home Farm as there is currently no one in a position to take over. With his daughter also getting divorced, Brian worries about the risk to the farm and so considers selling the business to be able to retire and ensure financial security for his children, even though it means giving up on his dream to pass it on.
Expert private capital lawyers say the common issues raised by the programme show that succession planning should start as early as possible to minimise risk and disagreements later down the line.
Tom Chiffers, a partner with national law firm Clarke Willmott LLP, said: “Conversations around succession can never come too soon - accidents, sudden illnesses and all sorts of changes in circumstance can occur and it’s always best for everyone involved to know where they stand.
“Some business owners aim to realise their business at retirement while others regard it as a family concern that they would like to pass on to future generations. Farmers traditionally fall into the latter category as their business is often also their family home and one that they have inherited.
“Planning should start by establishing what each family member wants, something Brian doesn’t seem to have done with his children and step-children. A Family Business Agreement can record what has been agreed within the family and help concentrate minds and facilitate conversations about the shape of the future in a way that is not legally binding.
“Wills are also an essential document, particularly where blended families are involved, as is the case with Brian.”
In many cases there will be some family members involved in the business more heavily than others, and some not involved at all. While this will have a bearing on planning, it is important to have open conversations with all parties to ensure everyone is happy, if not, aware, of plans.
Timing is also key with several financial reliefs coming in to play.
David Maddock, who specialises in advising clients on tax issues at Clarke Willmott, said: “Family members working in the business over time will require the incentive of taking on more responsibility and perhaps a share in the business, through a family farming partnership or other legal vehicle.
“If family members are to be brought into the business this might involve gifts which could incur an inheritance tax (IHT) charge if reliefs do not apply to all the assets. If made earlier there’s a greater chance of avoiding any IHT charge as there is a greater likelihood of surviving seven years, when such gifts fall out of account for IHT.
“Also Agricultural Property Relief, which exempts assets used for agricultural purposes, is very generous at present but there have been suggestions that this might change so a gift made now might qualify for greater relief than is available in the future.
“Furthermore at present gifts of agricultural and business property qualify for capital gains tax holdover relief so no CGT is payable on the gift, again this might change.”
While The Archers storyline continues on BBC Radio 4 and it is not yet clear which decisions Brian will make, the team at Clarke Willmott are encouraging anyone thinking about succession planning to get in touch for advice.
Clarke Willmott is a national law firm with offices in Birmingham, Bristol, Cardiff, London, Manchester, Southampton and Taunton.
For more information visit www.clarkewillmott.com