succession planning presentation wr and bl
DESCRIPTION
Recent presentation on succession planning for the farming community in West Cornwall.TRANSCRIPT
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• A team of Rural Advisers who can work with you to develop your business
• Access to specialist advice, knowledge and information to assist your business
• The main contact point for services, grants and other support under RDPE
• Tailored on farm advice to improve resource efficiency (R4F)
To find out more:Speak to one of us at the event today!
Visit: www.businesslink.gov.uk/southwest/rural Or: www.sw-ruralgateway.info
Tel: 0845 600 9966 and ask for a member of the Rural Team
The Rural Service and RDPE
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SUPPORTING THE FARMING INDUSTRY
SUCCESSION PLANNING
www.winterrule.co.uk
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Supporting the Farming Industry
SPEAKERS:
Robert Cowie Partner specialising in advice to the agricultural community
John Endacott Specialist Tax Partner
David Bullen Corporate Finance Manager
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Supporting the Farming Industry
Almost 1/3 of farmers have no succession plan in place.
Source: Institute of Chartered Accountants Farm Business Group Survey Autumn 2009
Succession
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Supporting the Farming Industry
Reasons for Lack of Succession
Inability to attract new entrants
Insufficient provision made for retirement
- Pension
- Housing
Non-succession tenancies
Reluctance to pass down to next generation
Lack of planning to overcome
- Ownerships/structural issues
- Tax issues
Will planning not done
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Supporting the Farming Industry
Barriers to passing the business on
Do the children want it and can you work with them?
Giving away assets means giving away income derived from them
Once assets are given away they are outside your control
Need to consider the stability of children’s relationships
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Supporting the Farming Industry
Income for retiring partners
Need £20k + (net of tax) to retire on- House running- Car- Food- Telephone- Holidays
Existing pension provision House (is there a property on the farm?) Plan well ahead
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Supporting the Farming Industry
Introducing children in stages
Employee
Salaried partner
Owning partnership assets, but excluding property
Keep property off the Balance Sheet and grant an FBT
FBT provides retirement income
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Supporting the Farming Industry
Profit allocations Profit 60,000
Stage 1 – salaried (or fixed share)
Son/daughter salaried partner 12,000
Balance of profit – Mr 24,000
Mrs 24,000
48,000
60,000
Stage 2 – profit share only, not owning any assets
“Interest” – Mr 9,000
Mrs 6,000
15,000
Balance of profit – Mr 15,000
Mrs 15,000
Daughter/son 15,000
45,000
60,000
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Supporting the Farming Industry
/Continued….
Stage 3 – profit share with equal share of partnership assets
Profits – Mr 20,000Mrs 20,000
Son/daughter 20,00060,000
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Supporting the Farming Industry
Transfer of the farm business but retain ownership of the land and property
Continue as a partner in the business
Introduce son/daughter as a partner in to the business
Grant FBT to the partnership of the farmhouse, land and property
Agriculture relief for inheritance tax purposes is available due to the FBT
Gift or sell farm business assets, eg livestock, deadstock, quota, to the new partners
If sale, repay over a number of years
Herd Basis – disposal tax free
No CGT
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Supporting the Farming Industry
Use of Limited Company
Different classes of shares can be created
Retain control
26% and 51%
You can decide when you give up control
Transfer of assets to company
Use of director’s loan account
Shares can be transferred to the next generation in stages
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Supporting the Farming Industry
Inheritance Tax Considerations - Agricultural Property
Changing the nature of the asset
Agricultural property relief
Agricultural value
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Supporting the Farming Industry
Inheritance Tax Considerations - Business Property
Plant and machinery / livestock
Non-agricultural assets
Integral unit (Balfour case)
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Supporting the Farming Industry
Inheritance Tax Considerations - Planning
Transfer taxable assets first
If a gift, need to survive 7 years
Security on assets
Balfour case
OTS review
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Supporting the Farming Industry
The current CGT regime
- Designed to benefit ‘trading’ rather than ‘investment’ activities
A gift is a disposal for CGT purposes
Transfer of assets to the next generation – connected persons = gift
CGT can be avoided
- Business Assets
- Agricultural property
Holdover relief
Capital gains tax
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Supporting the Farming Industry
Agricultural/business assets only
To another individual (son/daughter)
To a trust
Gift before change of use:
- Barns for conversion
- Farm worker’s cottage
- Land for wind turbine
- Development land
Hold-over relief
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Supporting the Farming Industry
Farm land and buildings 1,000,000
Originally acquired before 1982
Value in 1982 250,000
------------
Gain 750,000
-----------CGT £75,000
======
Gain as above 750,000
Hold-over relief (750,000)
-----------Gain NIL
=======
CGT Hold-over relief - example
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Supporting the Farming Industry
Occupied by a working farmer to get IHT relief at time of death
Stay as a partner in the farm
Or if property owned outside the partnership grant an FBT of the land and house
Farmhouses
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Supporting the Farming Industry
Furnished holiday lets
ASTs
Commercial properties
Agricultural tied cottages
Cottages and Let Property
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Supporting the Farming Industry
What is asset protection?
“The taking of steps to reduce the risk of assets being dissipated by family members or accessed by claimants, in particular, a divorcing spouse or creditor”
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Supporting the Farming Industry
“Put not your trust in money,
but put your money in trust…”Sir Oliver Wendell Holmes Sr.
(physician, professor and author)
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Supporting the Farming Industry
Continuing advantages of trusts
Prevents fragmentation of ownership
Control remains in the appropriate hands
Divorce protection
Taxation
– Income Tax
– Capital Gain Tax
– Inheritance Tax
– VAT
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Supporting the Farming Industry
Try to keep farm intact
Don’t leave assets to children jointly for them to squabble over
Pass farm assets to son/daughter who works on the farm
Pass other non-farm assets to other children
Use life insurance to try and equalise
You will not equalise the asset values!
Will planning (the accountant’s perspective)
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Supporting the Farming Industry
Plan well in advance
Make early financial provision for retirement
- Pensions/Investments
- House
Where assets have to be sold consider borrowing ability of the business – do not overburden
If in partnership keep “working” or consider withdrawing
Timing is crucial
Conclusions
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Supporting the Farming Industry
RURAL DEVELOPMENT PROGRAMME FOR ENGLAND (2007-2013)
David BullenCorporate Finance Manager, Winter Rule
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Supporting the Farming Industry
RDPE •Current situation•Moving forward•Practical tips and support available
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Supporting the Farming Industry
The April Announcement
Following months of speculation, Defra have now released details on the future of the RDPE, including its delivery and budget for 2011/12. The key message as far as budget is concerned, is that Defra are able to make a commitment to continue funding all elements (Axes) under the RDPE for the remainder of the Programme. However, as they have had to reduce budgets in some areas due to cuts in public spending, funding for the Programme will be under pressure for the rest of the Programme period to 2013 in most of the South West Region. However, Cornwall and the Isles of Scilly has retained its existing budget of £55 million so there is still scope for new projects to be supported. As all projects must be completed by the end of 2013 this brings challenges of its own so if you do have a project idea now is the time to start discussing whether the RDPE can help. If you do have an idea please contact Marilyn Pryor at Business Link on 0845 600 9966. From this summer, the programme will move towards national delivery arrangements to ensure a nationally consistent approach to delivery of RDPE. It is understandable that this may raise concerns regarding ongoing access to support available while this takes place, but Defra and the RDA are doing everything they can to minimise disruption and address any concerns that people may have. Full details of the budget, the transitional arrangements and the future of the RDPE in the South West can be found in the RDA’s March 2011 newsletter Rural Development Gateway - Reduced RDPE to continue. On another note, there will a Rural Development Pavilion at this year’s Royal Cornwall Show on 9th, 10th and 11th June (adjacent to the Member’s Pavilion); so be sure to come along to the stand for the latest update on RDPE or any information, advice and guidance on the support available to farms and food businesses in Cornwall and the Isles of Scilly
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Supporting the Farming Industry
The key points:•Commitment made to continue funding all elements (Axis) under the RDPE;•Funding will be under pressure for the rest of the Programme period to 2013 in most of the South West Region; but•Cornwall and the Isles of Scilly retained its existing budget of £55 million - still scope for new projects to be supported;•Projects must be completed by the end of 2013 - this brings challenges of its own so if you have a project idea now is the time to start discussing whether the RDPE can help;•Programme will move towards national delivery arrangements to ensure nationally consistent approach to delivery of RDPE•It is understandable that this may raise concerns regarding ongoing access to support available while this takes place, but Defra and the RDA are doing everything they can to minimise disruption and address any concerns that people may have
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Supporting the Farming Industry
What this means - RDPE Funding in Cornwall Axis 1: Improving the competitiveness of the agricultural and forestry
sector. RDPE funds available under Axis 1for;
– Adding value to agricultural products– Training and skills– On-farm advice and small capital grants
Axis 3: Improving rural quality of life and diversification of the rural economy.
RDPE funds available under Axis 3 for;– Farm Diversification– Rural Micro-enterprise– Community and Social Enterprise
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Supporting the Farming Industry
RDPE moving forwards
Transfer to Defra from 1st July 2011 Programme currently open for business More information will become available in the coming weeks Current team transferring across to Defra.
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Supporting the Farming Industry
Top tips: Experience from finance applications
1. Business Case/ Robust projections
2. Know what finance is potentially available
3. Understand financiers requirements
4. Engage with relevant support agencies
5. Ducks in a row
6. Patience/ End Game
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Supporting the Farming Industry
Projections / Robust Business Case• Distillation of strategy/ ideas into numbers• Quantify finance ‘gap’• Clarify thoughts on appropriate finance• Tips
– Use off the shelf package– Integrate profit and loss, cash flow and balance sheet– Document assumptions– Check internal consistency – Model sensitivity/ risks
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Supporting the Farming Industry
RDPE specific• Quotes – Time consuming• Risk assessment• Match funding support• Return on investment• Timescales
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Supporting the Farming Industry
‘Ducks in a row’• Product/ IP Protection• Structure• Route to market• Finance
– Package!– Do not forget the bank…
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Supporting the Farming Industry
Support
• Business Link• Leadership and Management Advisory Service
(LMAS)• Others
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Supporting the Farming Industry
LMAS
• Employ b/w 2 and 249 employees• Looking to grow the business• Skills review identify need for assistance• Grant of up to £1,000 to offset costs of assistance• Examples
– Financial projections• Contact: Diana Lobb, Skills South East
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Supporting the Farming Industry
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LOWIN HOUSETREGOLLS ROAD
TRUROCORNWALL
TR1 2NATELEPHONE: 01872 276477
EMAILS: