Challenging time ahead – has the time come to consider succession planning?
As a farmer, and a solicitor, I am well aware of the many challenges faced by the farming industry as almost every area of law is subject to change since the UK’s departure from the EU.
The Agriculture Act 2020 (“AA 2020”) provides the legal framework for the UK to establish a new system based on public money for public goods. Direct payments to farmers are currently based on how much land is farmed but this will be phased out starting from this year over a seven year period. Monies will be instead paid to farmers for producing ‘public goods’ such as environmental or animal welfare improvements.
The Government is currently considering offering farmers a capitalised payment, or lump sum payment, which will be a one-off optional lump sum payment in place of direct payments. It is widely considered by some in the farming industry to be an ‘inducement’ to retirement so it is likely to be targeted at certain age groups. With the average farmer in the UK being in their 60s, perhaps now is the time to start thinking about succession planning and whether you should consider a capitalised payment. Whist the capitalised payment may provide some retirement opportunities careful consideration should be given to handing over to the next generation.
Succession planning is not only about retirement, it is long term planning for your farming business. In order for your farming business to move forward you need to consider carrying out a thorough review of your current farming practices, your aims, objectives and what resources you may need for your farming business to continue to be profitable in the future whilst taking into consideration the capitalised payment.
Farming families can sometimes be reluctant to have a formal agreement put in place as relationships are strong and they simply do not see the need to do so. It is important to be aware that family dynamics change – birth, marriage, divorce, retirement and death – and family relationships can break down. If your farm is run by two or more persons you should consider formalising that arrangement by way of written partnership agreement clearly setting out the terms upon which the partners wish to carry out the business. A partnership agreement clarifies what has been agreed by the Partners rather than it being based upon assumptions.
Careful thought should be given to how you wish to structure arrangements to enable retirement and how best to hand the farm on to the next generation without disadvantaging your farming business. Restructuring should be carried out for a justifiable reason and not simply to maximise a capitalised payment. Knowing how land is held is key to succession planning when considering retirement, fairness to non-farming members of the family and capitalised payments.
It is never too early to start the conversation.
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