Solicitor at Thorntons Law LLP, in Edinburgh, Cameron Mathieson discusses legacies, and how to plan for the future within your business.

It is never pleasant to think about death, least of all your own. The daunting prospect of “what comes next” is often the reason that people hold off on taking any meaningful steps to organise their affairs, and for farmers and landowners, sometimes that delay can be catastrophic, both emotionally and financially.

It is often difficult to come to terms with the loss of a loved one, but that is compounded when those left behind need to untangle a complicated set of affairs, whilst keeping a farming enterprise going. Bringing your affairs in order is one of the best ways to make things easier for your family.

This is why it is important to start thinking about your succession, or next generation planning; to help ensure a smooth transition and protect the legacy you have worked for, for generations to come.

It can be daunting, and most people have no idea where to begin. Speaking to your solicitor about a new or updated Will is a great place to start. For most of the population, that is generally all that is needed. But the affairs of farmers and land owners are, unsurprisingly, complicated. Their life and their livelihood are so intricately entwined, that in order to develop a proper strategy, your professional advisor really needs to develop a bird’s eye view of the whole farming and other business operations.

One of the most common issues that we come across is that an overarching approach has not been taken. There is often far more that needs to be considered than even you may have realised, and looking at aspects in isolation can often lead to unintended consequences which cause more issues than they solve.

That is why I have detailed key things to think about below. This is very much a starting point of things for you to consider, then, when you are ready to take that first step, you can begin the discussion with your advisors.

Communication – particularly with farming families, this really is the key. Often there is an assumption that those currently engaged in the farming operation will want to still be involved, but that is not always the case. If they do continue to farm, they sometimes want to take their inheritance and set up on their own. Some of our clients are worried about making provision for all children equally, even if only one has been involved in the farming business.

Some children expect an equal share of their parents' estate regardless, some don’t expect any benefit from the farming assets if they have not worked for it. It can be tough, but often having initial conversations with your family about how you envisage the business continuing after your death, and what their expectations are, can help prevent upset or nasty surprises after your death.

Legal Rights and Non-Farming Children – An added complication when it comes to families is a doctrine called “Legal Rights”. In Scotland, you cannot completely disinherit a child or spouse. They hold certain rights over the “moveable” elements of your estate, which includes assets like money and investments etc., as opposed to “heritage” which is land. The complication that almost always arises with farming families however is that “land”, if held in a company or, in certain circumstances, a partnership, is normally treated as “moveable” because truly, it is an asset of the business.

If a child does not feel that they have been left what they deem as a sufficient inheritance, they can claim their Legal Rights which may be significant and may ultimately destabilise the farming business. Land may have to be sold or money borrowed to satisfy these rights. If having spoken to your family, you feel that there may be a Legal Rights claim, there are steps you can take to mitigate this.

Tax Planning – farmers are able to benefit from incredibly valuable Inheritance Tax relief in the form of Agricultural Property Relief and Business Property Relief. The rules for these schemes are very complicated and subject to change. Assets that you may think will pass tax-free (because that’s what happened last time) may not be tax-free this time. It is very important to review the situation to gauge if the reliefs will be available in your circumstances, and if not, can anything be done?

This is particularly important in relation to farms where there are renewable schemes that generate significant levels of income. It is also important to think about tax if you have, or are about to, gift assets. This could cause unexpected tax bills in the form of Capital Gains Tax, or Inheritance Tax so it is important to take advice first and document everything.

Business Model – many farms operate either as a partnership, by way of a limited company, or a combination of both. Irrespective, it is very important to understand at the outset what the actual trading entities are, and the basis on which they operate. Many Partnerships don’t have a written partnership agreement, there being no requirement to have one. In a practical sense, can, or will, your business continue in the event of a death?

It may be worth looking at bringing other family members into the business now to ensure a smooth transition. Do you fully understand what will happen to your interest in the farming enterprise on death? You may not realise, but there may be rights for other partners or shareholders to buy out your share on death, as opposed to it passing to those who you have named in your Will.

The Land – farm titles are notoriously complex. As part of any next generation planning exercise, it is important to ensure that the titles reflect reality. This covers a number of issues from ensuring that title boundaries reflect the position on the ground (a common issue with rural property) to ensuring all access and other rights are properly documented.

You know your land better than anyone, and it is far easier for you to be involved in tidying up any anomalies or issues with your title whilst you are still alive than for your family to have to address these on death. Is your land registered in the Land Register? If not, have you considered Voluntary Registration?

In Scotland, we now have a Register of Controlling Interests. It is very important to ensure that by April 1, 2024, your current management structure reflects the title position, that you have updated the new register, or you and your fellow owners risk fines and potential prosecution.

Not every farmer owns their land, however, and we act for a significant number of agricultural tenants. In this case, it is paramount to understand the nature of the tenancy, who the tenant is, and how the tenancy would be impacted by death. A failure to consider this point as part of next-generation planning can put the tenancy at risk.

Next-generation planning isn’t always easy, but neither is farming. It is important to take detailed advice from the beginning to deliver the best outcome, not only for your family now but to help ensure a lasting legacy for the generations to come.