cla succession event - 3 december 2014

Succession Planning

Simple Steps

[email protected] 07720 496510

What is your biggest fear?

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mailto:[email protected]


When

• What stage in the current business lifecycle are you at?

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Maturity

Time

Succession

process

Missed economic

opportunity



The succession planning process

Planning Commitment Establishment Withdrawal

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Time and responsibilities

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Time

Responsib

ility

1st Generation

2nd Generation



The succession planning process


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Successor or heir?

Priority: Continuation of

farm family business

Priority: Continuation of

family ownership of farmland



Take Home Points

• You don’t have a rehearsal

• Start the process as early as you can.

• Make sure you understand both individual and family objectives.

• Each of the four parts of a succession plan must relate to and respect the other elements.

• Implementing a succession plan can take over 15 years.

• A good succession process will increase the value of your business and family.

• At the end of the plan the retiring generation must leave.


SUCCESSION

PLANNING:

Minimising your tax

bill

Tax issues to consider

Transfers on Death

Inheritance tax

• Agricultural Property Relief (“APR”)

• APR and the Farmhouse

• Business Property Relief (“BPR”)

Lifetime transfers

Capital Gains tax

• Entrepreneurs Relief

• Business Asset Roll-Over Relief

• Gifts Hold-Over Relief

Agricultural Property Relief

What is APR?

• Relief from Inheritance Tax

(“IHT”)

• Applies to “agricultural

value” of property

• 100% or 50%

When does APR apply?

• Property must be agricultural

in nature

• Occupation condition: two

years immediately before

transfer

• Ownership condition: 7 years

immediately before transfer

• Property must have been

used for agricultural purposes

throughout

In theory APR would apply to a farmhouse satisfying these conditions

What is Agriculture for APR?

Farming defined as the occupation of land wholly or mainly for the purposes of husbandry

• Includes activities normally recognisable as farming such as growing crops and the raising of farm livestock

• Includes market gardening and the intensive rearing of livestock or fish on a commercial basis for averaging only

• Grazing horses is not an agricultural use of land

APR and the Farmhouse

• Farmhouse : “a dwelling for the farmer from

which the farm is managed” (Rosser v IRC)

• The problem: the farmer vs. the lifestyle farmer

APR and the Farmhouse – farmer or

lifestyle Farmhouse must be of a “character appropriate”

• Size and nature

• Profitability of land vs. cost of farmhouse

• History

Agricultural value • “The value which would be the value of the property if

the property were subject to a perpetual covenant prohibiting its use otherwise than as agricultural property”

• Hope value – development value etc.

Business Property Relief

What is BPR?

• A relief from IHT

• For certain interests in qualifying trading businesses

• 50% or 100%

• APR is applied before BPR

• Can bridge the gap between agricultural value and market value

• Will NOT apply to farm house (may apply to area wholly and exclusively used for trade e.g. Farm Office)

Business Property Relief

How to qualify?

(1) a business or an interest in a business e.g. a sole proprietor’s business; and

(2) owned by the transferor for a minimum period of two years immediately preceding the transfer or death

NOTE: A business does not attract BPR if it consists wholly or mainly of dealing in land or buildings or making or holding investments.

Importance of succession

planning

How to ensure business continuity?

• Lifetime gifts

• Partnership Agreements

• Will

Lifetime Gifts

Consider CGT implications?

• Are reliefs available?

o Gifts Hold-over Relief

o Entrepreneurs Relief

Consider Gift with Reservation of Benefit rules

THANK YOU

16 Belgrave Square

London SW1X 8PQ

Tel 020 7235 0511

Fax 020 7235 4696

Email [email protected]

Website www.cla.org.uk


Clear Legal Advicewww.birketts.co.ukClear Legal Advicewww.birketts.co.uk

Clear Legal Advicewww.birketts.co.uk

Building Blocks for Succession

Rachel Mc Killop-Wilkin

Senior Associate

T: 01223 326580

E: [email protected]


Successor?

• Have you identified your successor?

• Do they know?

• Do the other members of the family know what your plans are?

• Equality and fairness are not the same thing.


Successor?

• Do you have a strategic management plan?

• How often do you review it?

• Who is involved in the review?

• Review may result in amendment.


Land and Asset Ownership

• Can you identify the land that you own?

• Is it in the right ownership?

• What other assets do you own?

• Why is this important?


Business Structure

• Partnership

• Written vs unwritten

• Key points to consider

• Share of capital and income


Business Structure

• Occupation of partnership property

• Residential

• Farming operations

• Option to buy out on retirement

• Business Property Relief and property on the balance sheet


Business Structure

• Limited Liability Partnership

• Flexibility v public accounts


Business Structure

• Company - UK or offshore

• Mixed partnerships and the new tax rules


Other Tools In The Box

• Trusts

• Contract Farming Arrangements

• Share Farming Agreement

• Pre-Nuptial Agreement

• Post-Nuptial Agreement


Power of Attorneys

• What are they?

• Who needs one?

• Enduring Power of Attorney/Lasting Power of Attorney


Wills

• Who needs them?

• We all do!

• Do you have one?

• Where is it?

• When was it last reviewed?

• Does it dovetail with your partnership agreement?


Change in Circumstances

• Have you got married since you made your will?

• Do you have assets or property abroad?

• Do you have a foreign Will to deal with these assets?

• Have you appointed the appropriate executors?


Conclusions

• Who

• What

• How

• When

• Communication, communication, communication


Thank you

“Succession”

What does it mean to you?

Barriers To Succession

a. Barriers to exit

.. What’s stopping the elder generation from passing over responsibility?

Barriers To Succession

b. Barriers to entry

.. What’s stopping the younger generation from taking on responsibility?

Set your direction and objectives as a family

BUT

Make your decisions as a business

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Setting the Direction of Travel

Today

•In our Industry?

•On our Farm?

•In our Family?

•In our Life?

The Future

•In our Industry?

•On our Farm?

•In our Family?

•In our Life?

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How do you all view the future?

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Dad

Siblings

MomOther Family

Members

Me

Responsibilities and roles

• The principal farmer

• The successor

• Siblings

• The Principal farmers partner

• In-laws

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Responsibilities throughout the process

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The planning stage

• Avoid holding meetings in a family home.

• Make sure all relevant parties are present.

• Think about using a facilitator for the meeting and process.

• Set an agenda for meetings and make sure all of the family see the agenda before the meeting.

• Set rules for the meeting and the process.

• Don’t try to have an answer for everything.

• Don’t take too big a step in one go.

• Try and keep discussions to the whole group within the meetings.

• At the end of each meeting, thank everyone and set a date, time and venue for the next meeting.

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Family Rules?

Discuss as a group the type of rules which would help to successfully run a family business meeting.

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The key to making this approach work

• Communication

• Communication

• Communication

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Conflict: the inevitable issue

Conflict theory begins by asserting that conflict in families is the normal state of affairs.

Active Conflict

Passive Conflict

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Sources of Conflict

CONFLICT

Family

•Age

•Values

•Children

•Accommodation Needs

Work

•Work Ethic

•Long Term View

•Decision Making

•Power

•Economic Performance

•Employees

•Attitude to Risk

Me

•Extended Family

•Health

•Social Demands

•Stress

•History

Conflict: the inevitable issue

• To resolve a conflict the parties must come to a mutually agreeable solution.

• Negotiation is the process by which a conflict may be resolved in a mutually agreeable manner.

The Process of resolving Conflict Within a Family

• Step 1: State the problem and who's involved

• Step 2: Establish ground rules

• Step 3: Brainstorm solutions to the problem.

• Step 4: Evaluate the risks and benefits of each potential solution.

• Step 5: Reach a solution as a team.

• Step 6: Identify what each family member will do to work on the solution.

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Important Notes

Warnings

• Seek professional help if you are not able to resolve the conflict peacefully.

Tips

• Use "I" messages instead of "you" messages to express your thoughts and feelings.

• The word “and” ties people together. “But” holds people apart.

• Find a solution that will benefit all.

• Do not destroy the relationship with those involved in the conflict.

• RELATIONSHIPS ARE IMPORTANT

• MUTUAL PROTECTION IS BETTER THAN MUTUAL DESTRUCTION

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Concluding Thoughts

• The principal farmer is responsible for making sure the succession process is implemented.

• This does not mean they need to do all the work.

• Think carefully about the role of in-laws. Love them or not they are part of your family.

• Set the objective as a family, but make decisions as a business.

• The kitchen table is not the place for succession planning.

• The new entrant has to prove themselves.

• Conflict cannot be swept under the carpet

• Use professionals to support your plans.

• Remember that everyone is scared of getting it wrong.

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