In this weeks Farmers Weekly Business Clinic, Gavin Smith, Senior Associate from the Thrings Private Client Team answers this question:
Our family owns and runs an arable and dairy farm of 450ha in an equal shares partnership between myself, my husband and our two daughters. We all believe in keeping it as a mixed farm.
Our daughters have been running the business for some time now, with one managing the arable side and the other the 300-cow dairy.
While this works well day to day, the business needs investment and each of our daughters is championing her enterprise. This presents a dilemma as to whether to prioritise grain storage, drying and handling or a new dairy.
Since the future of the business lies more in their hands than in ours, my husband and I don’t want to impose our views. Please can you advise us on approaches and strategies to help us arrive at a sensible joint decision.
Gavin Smith, Senior Associate – Private Client Team at Thrings:
It is clear that you are taking a very measured and scrupulously fair approach to a problem that can often be complex. You have two goals here – to create conditions that will support the long-term future of your farming business, and to protect the harmonious relationships in the family.
Together, you have already made some of the most important decisions – to keep the business as a mixed farm, to keep it in the family with clear responsibilities for each daughter, and to support both in their enterprises as equals.
Your most immediate dilemma is how best to use the proposed investment, and the most efficient ways of doing this. There are several factors at play here and it’s important that, as a family, you agree on the priorities for investment, and their urgency.
For example, you may all agree that one daughter’s side of the business is currently in more need of maintenance or cash injection, while the other could wait. In this case a gift during your lifetime could be made to the first daughter while the second could then receive more under your Wills to balance things up.
Consider also how the money is to be used – generally speaking, investment in agricultural business and assets are likely to benefit from agricultural property relief or business property relief for inheritance tax purposes.
It is wise to keep the ownership of any buildings, land or assets within the business rather than in personal ownership, which protects them if, for example, either daughter went through a divorce.
Another question is what may happen if either daughter’s enterprise fails, or if she wishes to leave the family business.
Ensure also that any partnership agreements – whether equally split between you as a couple and your daughters or weighted differently – are well structured and clearly define how your share of the business will be handed down either during your lifetime or after death. And, of course, ensure wills are up to date once those decisions and agreements are made.
With so many factors and family dynamics in play, yours is as much a practical dilemma as it is a legal one. Good communication will be essential to understand what each party would like to achieve now and in the future, and taking advice from succession, tax and agricultural business advisors at this point will avoid problems down the line and help secure many profitable and happy years of family farming to come.