Succession Planning

Posted 24/08/2014

Succession Planning is an important element of any family business, but is particularly so in farming and agriculture. Much of the day-to-day advice we give to farmers and landowners involves succession planning. As a Norfolk farmer’s daughter and agricultural solicitor, I have both professional and personal experience of the area.

Farming is all about preparation, execution and forward planning. Succession Planning is often taken to involve the next generation. It may involve on or off-farm diversification, such as the Salisbury’s cheese making enterprise – the 2013 winner of the Best Alternative Land Enterprise (BALE) award, sponsored by Ashtons Legal – and Geoff Claydon’s Claydon Drills business, through to the application of strict rules on succession to assets, such as water abstraction licences or agricultural tenancies.

Succession Planning within ‘rules’ has to take into account legislation, and decisions made by the Courts and Tribunals (case law). Planning and preparation is crucial to successful succession. A significant amount of my workload includes specialist agricultural tenancy successions which are a classic example of ‘published rules’ and then case law ‘tweaking’ the interpretation of those rules. 

The most recently published succession case was December 2013, which involved a hill farm at Castle Carrick in Cumbria, where Edward Wannop applied on his father’s death for a second succession tenancy.

As is the trend, second and third generation farmers often get income outside of farming on a holding. But they need to be aware of how this short-term income gain may have a longer term disadvantage. When it comes to non-farm income, to be able to have a successful succession argument, an applicant needs to show that on the tenant’s death or retirement, more than 50% of the applicant’s income is derived from farming, and farming on the holding. Separately, a successful applicant must show that he or she does not occupy another farm, within certain rules.

In the Wannop case, Edward did not occupy any other property but, even though he had been a partner from 2001 onwards, he had supplemented his income by working for Railtrack, subsequently Network Rail. He had also carried out non-agricultural contracting work and bought two investment properties. In this case, the Tribunal found that there was insufficient income derived from his work on the holding.

The case is interesting because it applies evolving case law from the strict rules on what constitutes ‘benefits in kind’. The definition is completely different from ‘taxable benefits in kind’. In the Wannop case, it turned on the applicant’s exclusive occupation of a double bedroom, shared use of a kitchen and bathroom facilities, and shared use of a back kitchen for the storage and repair of high value bikes.

The Courts are increasingly making a thorough analysis, looking into incredible detail at applications such as Wannop’s.

The Wannop case was the second unsuccessful succession case reported in 2013. Such cases underline the importance for farming families to clearly identify what assets are important to the family, in terms of succession planning, and how to structure income and business assets and farming and business enterprises, so as to preserve them for future generations to come.

For individual advice, please contact Jeanette Dennis on 01284 727063 or email jeanette.dennis@ashtonslegal.co.uk