A practical guide to farm succession planning

As tax rules tighten and economic pressures mount, the future is no longer a distant theory and succession planning has become critical to safeguarding assets and protecting the viability of farming life.

With family farms steeped in tradition yet facing modern challenges, preparing for the future is more about practical action than distant theory.

Succession planning might not be standard dinner-table chat, but with looming tax reforms and rising financial pressures, it’s a conversation farming families can no longer avoid.

“Succession planning has never been more important than it is right now,” says Willem, Partner at Old Mill. “People need to talk earlier, plan earlier, and take proper advice before it’s too late.”

Historically, many farming families have postponed detailed succession discussions, focusing instead on the day-to-day demands of running a farm. But proposed changes to inheritance tax and agricultural relief rules, including capping relief at just £1 million per person, have made it urgent to re-evaluate long-held assumptions.

“The current regime offers a seven-year clock on gifts for them to fall outside the scope of inheritance tax,” explains Willem. “If you don’t start planning, you may find your assets, be they land, machinery, or even cottages, suddenly exposed to heavy tax bills.”

While every situation is unique, the following steps form a robust foundation for effective succession planning:

Understand your inheritance tax exposure
Too often, families assume their farm will automatically pass tax-free to the next generation. But reliefs like Agricultural Property Relief (APR) and Business Property Relief (BPR) aren’t guaranteed. “Know what your exposure looks like,” advises Willem. Whether your farm is a small partnership or a multi-million-pound business, getting an assessment of your tax position is the first step. “You might be worried for no reason, or you might have a huge problem and not know it.”

Decide what you want to happen
This is often the hardest part, especially in families with multiple children, not all of whom are involved in the farm. Honest, early conversations about who will take over what, and why, are essential to avoid future conflict. ‘Fair’ doesn’t always mean ‘equal’, but it does need to be understood.

Determine what you need to retain
Succession is about passing on the business without giving away your own security. Think carefully about what you need to maintain your lifestyle, your home, income, and access to capital if circumstances change. Handing over too much too soon can create dependency or strain family relationships later on. Striking a balance between giving and retaining is crucial.

Maximise tax reliefs
Many families miss out on available reliefs simply because they haven’t structured ownership correctly. For instance, if one partner owns all the assets, the other’s entitlement may be lost, wasting a valuable opportunity to reduce exposure. “It’s a use it or lose it situation,” Willem warns.

Review (or write) your wills
An out-of-date can derail even the most carefully crafted succession plan. “You’d be amazed how many haven’t updated them in 50 years,” says Willem. Wills should reflect your current circumstances and be reviewed regularly, especially after major life events.

Gifting and timing
Lifetime gifting can significantly reduce inheritance tax, thanks to the seven-year rule. But the next generation must be ready to receive. If you gift too soon, you risk losing control; if you wait too long, the tax benefits vanish. Conditional or phased gifting, supported by legal advice, can strike the right balance.

Consider trusts
If you’re not comfortable transferring assets outright, trusts can be an effective alternative. Trusts can help you transition ownership while retaining some control over how assets are used. Though complex, they offer flexibility and can protect against disputes. Willem points out that although complex, they are ‘a good way of buying time’.

Don’t overlook life insurance
Many families underestimate the role life insurance can play. A properly structured policy can cover tax due to death, ensuring heirs aren’t forced to sell land or assets to settle a bill. “If you’re handing considerable assets on to the next generation, life insurance is almost a given,” Willem notes.

Used strategically, these tools offer peace of mind, ensuring that even in a worst-case scenario, the farm won’t have to be sold to settle tax liabilities.

In one example, Willem recounts the story of two brothers in their 40s, holding £20 million in farm assets. With young children and gifting off the table, life insurance was their only viable short-term option. “It doesn’t eliminate the tax, but it gives the next generation a buffer.”

In another case, a lack of planning meant a sudden death could have triggered a £500,000 tax bill, a crippling sum for a family whose assets were high in value but low in liquidity.

Beyond the numbers, succession planning forces families to address legacy, control and future responsibility. Done well, it can strengthen relationships and give peace of mind. Done poorly, or not at all, it risks undermining everything which has been worked to build.

Farm succession planning shouldn’t be a rainy-day job. It’s as integral to the survival of the business as planting the seeds in spring.

“If you don’t know what your exposure is and you haven’t taken the steps to reduce it, you could be forced into decisions that will cost you dearly, both financially and emotionally.”

For every farming family looking to secure its future, the message is clear: understand, plan, and act. Update your wills. Review your assets. Consider gifting. Explore trusts. Ensure life insurance is in place.

By doing so, you not only protect your legacy against tax but against uncertainty, ensuring your family’s future way of life endures.

If you want to discuss your current business structure, or any financial aspect of your farming business, contact Willem at willem.puddy@om.uk or 01225 701210.