succession planning for farms and estates

Budget puts focus on

October’s long-awaited Budget came as a shock for the farming community.

In the immediate aftermath, the Labour government was accused of, at worst, lying to farmers and going back on promises made in the run-up to the election to not alter inheritance tax reliefs. At best, their understanding of the real value of farming businesses and the damage such changes could have on the UK’s long-standing tradition of family farms was called into question. The announcement that provoked the most furore was Chancellor Rachel Reeves’ decision to apply inheritance tax at an effective rate of 20% from April 2026 on all farm assets worth more than £1m.

Speaking after the announcement, Tim Jones, Carter Jonas Head of Rural, says: “Changes announced relating to APR and BPR will undoubtedly present a significant financial challenge for agricultural businesses who plan to pass on their farms to the next generation. It is likely that land and property will have to be sold, or debt taken on to pay the new inheritance tax charges. Both scenarios will impact the viability of already struggling businesses. "The impact on the tenanted sector is also concerning as landlords may decide to take land back in hand or sell.”

"It is likely that land and property will have to be sold, or debt taken on to pay the new inheritance tax charges. Both scenarios will impact the viability of already struggling businesses."

He added that the sale and purchase of farms and estates will also be affected by the announced increase in capital gains tax. "Rollover relief remains in place, which is an important driver in demand for land, so investment in agricultural land and property is likely to continue at current levels,” he adds.

"Some further clarity has been provided on the tax treatment of land under environment management which now qualifies for agricultural property relief. This is something many of our clients were seeking before committing to environmental schemes, particularly long-term options. "The increased cost in labour intensive farm operations will also be a concern to many in the industry as the increased cost of labour continues to push up production costs in an already tight market."

As the dust settles and farming businesses begin to contemplate exactly how the changes may impact them, it’s vital that professional advice is sought to help break down the practical implications of the Budget when applied to an individual business. The Budget and the changes to APR have further highlighted how important a strong succession plan is to a farming business.

What next?

Succession is ultimately about ensuring the future viability of a business and clarity for those involved in it. Some farmers may be tired of being told about the importance of planning how their business will evolve in the future, but the repercussions of not going through this process far outweigh any reluctance or awkwardness they may initially feel.

“Starting the conversation about succession is often one of the hardest steps, and the changes announced in the budget have certainly brought the importance of planning into sharp focus,” says Carter Jonas Partner Mark Charter. “We are seeing clients taking the initiative and looking at the right plan for their business. That will include gifting, putting assets into trusts, and other succession options, but these are big decisions and not something to be rushed into unless there are overriding health or age concerns.”

So that everyone involved grasps the seriousness of the topic, it helps if the situation is formalised. A professional succession facilitator can play a role; bringing in an impartial expert can often take the emotion out of the initial discussions and steer the direction of the process.

The conversation should begin with each party outlining what it is that they want or need from the business. Some of this may be obvious, but family members may have decided they want different things from their careers – or indeed their retirement – and this has a big influence on how the situation progresses. Joe Spencer, a partner at accountancy firm MHA, emphasises the importance of thinking strategically to those at the beginning of the process.

“I’m often asked about what is best to do when it comes to succession planning and often the answer is very complex,” he explains. “Every situation is different, every family is different and there is no silver bullet. “In terms of challenges, one of the things that is most underestimated is the time it can take to go through a business succession planning procedure and the emotions involved. The emotions of the older generation may be very different to those of the youngest. And there may be people involved who have their head in the sand – some people just do not want to be engaged and that’s another big challenge.

“The loudest voice in the room isn’t always right and there is a fear of a loss of control. My top recommendation is to keep things transparent – lay all the cards on the table and hear all the voices. That’s a good foundation to start from. It’s a journey and you need to take everyone with you.” Mr Charter agrees that clear communication, across all generations, well ahead of time and in a non-confrontational manner, is the crux to success.

“An area where things can go awry is where future intentions are not discussed. For example, not discussing what’s in parents’ wills which then leads to surprises, particularly where there are siblings and some are involved in the farming operations and others are not, and you have an uneven division of assets,” he explains. “Not having this discussion ahead of time is generally what leads to ill will amongst the younger generations in family operations. Early, honest, open and transparent communication is essential.”

Sam Doherty, a partner at law firm Thrings, says that dividing assets fairly between farming and non-farming children can go against the overall aim of a succession plan, which is to ensure the business can continue operating in the future. “Dividing the business up and taking some of the land away from the farm will potentially stop it being viable,” says Ms Doherty.

Exploring different corporate structures could potentially be a solution, such as creating a limited company or giving non-farming children a different class of share. This would provide for all siblings while ensuring the farm can continue to operate. “By giving shares to non-farming children, they can benefit from the success of the business via income or capital,” says Ms Doherty.

Mr Charter adds that all parties must find areas of compromise and common ground. “If parents are looking to leave the farm to their children, they might want to do so in unequal shares to reflect the value and the earning income that the sibling who is farming has foregone by working in the business,” he says.

“It’s not unreasonable to have an outcome where you have an unequal division, but leaving it all to one sibling and cutting out the others is not the right outcome either. “It is finding some middle ground and making sure you have explained your situation to all of the siblings, and that it is well documented.”

Advisers play an important role in what can be a highly emotive and complicated process. Lawyers, accountants and land agents all have a part to play in creating a strong succession plan which is written down and reviewed regularly. The documents they help create will present the case for how the business is run, and should stand up to scrutiny should HMRC decide to investigate how assets have been transferred.

Succession is ultimately about ensuring the future viability of a business and clarity for those involved in it. Tax is a key consideration during the process, but Mr Charter warns against making it the sole driver. This is an opinion he held before the Budget, and his stance hasn’t changed since the changes were announced.

Tax and succession planning

“There are a number of options for those worried they can’t afford to pay the inheritance tax, but each farm and estate is different. One approach will suit some but not others and vice-versa,” he says. “What is important is not letting the tax tail wag the dog. Gifting, for example, might mitigate inheritance tax liability, but it has consequences too – for ensuring income or resources for future needs, the unforeseen early deaths in other generations, or marital difficulties for example. It may also be worth considering partnerships to hold some assets, such as the farming equipment and stock. Life insurance against future IHT liabilities is a tool that we may see used more frequently in farming families as a direct consequence of the budget.

“Taking time to understand how the new tax regime is likely to affect succession is an obvious but important first step before considering the next steps. The industry has reacted strongly so there may be merit in waiting to see whether lobbying and further consultation has an impact on the announcements made by the Chancellor in October.”

“Starting the conversation about succession is often one of the hardest steps.”

"The loudest voice in the room isn't always the right one."

"Lay all the cards on the table and hear all the voices."

“Starting the conversation about succession is often one of the hardest steps.”

Key questions

Some key questions families will want to answer during the succession planning process are:

Who legally owns the land, machinery, stock, farmhouse etc? What role does everyone play in the business, and what role would they like to play in future? Some farms who have tackled succession early talk openly about what is currently stated in wills. In the event of death, who will be passed the assets? What is the long-term plan for the business as it stands today? Do family members share that vision or have new ideas they want to implement?

Pick your moment carefully – when people are relaxed and happy to talk Understand where everyone else stands – listen before talking If someone doesn’t want to talk about succession, draw up an agenda for the meeting and tell them it is taking place with or without them Start with the easy topics first – don’t go straight into money and ownership Start the process early – the earlier you start the more options you have Don’t make the subject taboo – talk about it often.

Starting the conversation

• • • • • •

Personal objectives these must be considered first

Profitability if a business doesn’t generate profit, then it will never work

Timescales they must be realistic

Tax it is important but shouldn’t be the sole driving force behind the plan

Important considerations

"One approach will suit some but not others and vice-versa."

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