Succession Planning – The Top Tips
Succession planning for land and business owners is complex. As well as a multitude of family considerations there are numerous legal and other issues. It is far from a checklist exercise but here are some top tips:
- Is there an up-to-date partnership (or shareholders’) agreement in place dealing with questions of internal governance, succession, retirement, expulsion, options to purchase and the basis of valuation for an outgoing partner’s share?
- Do the partnership accounts correctly record land ownership/land held as partnership assets? Are the accounts, partnership agreement and title deeds consistent?
- Has the inheritance tax position been analysed and restructuring undertaken to obtain or improve reliefs where appropriate? In particular, has agricultural land with development value been structured correctly so that it is eligible for business property relief on any value over agricultural value?
- Have qualifying periods of land ownership for agricultural property relief been checked, particularly on a change from in-hand farming to a tenancy?
- Are any farming agreements (e.g. contract or share farming agreements) robust enough to withstand scrutiny by HMRC?
- Are there any forgotten tenancy agreements? Old tenancy agreements may mean relief at 50% rather than 100%. Has consideration been given to the surrender and re-grant of tenancies to improve the relief?
- Is the farmhouse really a farmhouse – ie occupied by a working farmer, the hub of the agricultural operations, of a character appropriate to the holding? Is the right person occupying the farmhouse to obtain relief?
- If the farm includes properties which are used for non-farming purposes, (eg let properties) should the business be structured with a view to obtaining 100% business property relief? A taxpayer with a mixed business needs to tread carefully as once the investment element exceeds 50% it will result in the total loss of relief!
- Is financial planning both for business owners, and to make provision for others, up to date eg pensions, pension nominations, life assurance, health insurance etc. Has life assurance been written in trust so that it does not form part of the taxable estate?
- Are Wills for all family members up to date? The Intestacy Rules should not be relied upon!
- Reliefs can never be certain, when a Will is drafted, so have Wills been drafted on the basis of discretionary trusts forcing HMRC to rule on the reliefs available and providing flexibility to take account of changing family circumstances?
- Have pre-or post-nuptial agreements been considered to protect assets on a divorce and are they part of the family charter?
- Do the land and business owners have Lasting Powers of Attorney in place to safeguarding against incapacity arising from illness, accident or old age?
Just some of the issues! When the time comes, is your documentation sufficiently robust to withstand internal disputes and to face HMRC?