Succession planning: Plant the seeds now

This article was first published in The Business.

Anyone who owns a business needs to plan for succession to it. Many things can make this process more difficult, including issues arising from family ownership, significant asset values, and a complicated and changing tax position – all of which can arise in the agricultural sector.

In particular, the well-publicised recent changes to Inheritance Tax mean that many rural businesses could be hit with significant tax liabilities if they do not take early action to address succession. Exactly what those steps are will vary from case to case – depending on the current ownership, assets values, and the ability to identify a suitable successor – but in many cases doing nothing is no longer a viable option.

As a result, it is likely that lifetime gifting will become a crucial part of succession planning. The challenge is often one of timing. Making the gift too late increases the risk of the donor not surviving for the necessary seven years. Too early, and issues such as the associated reduction in income and the age of the recipient can become a greater risk. Ultimately the challenge is looking to balance the risks associated with making a gift against the potential longer-term tax savings.

Life insurance will also play a large role – both to provide cover for payment of IHT for the younger generations, and to cover the seven-year period for any lifetime gifting by the older generations.

The above is a very brief and simplified summary, and many of the details of the legal changes are not yet fully known. But the core message is clear: for rural business, failing to plan for the next generation of ownership could be a very expensive mistake.

If you would like to have a more specific discussion of your own circumstances, don’t hesitate to contact our specialist Private Wealth team.

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