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Succession Planning Presentation Wr And Bl

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Recent presentation on succession planning for the farming community in West Cornwall.

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Succession Planning Presentation Wr And Bl

  1. 1. <ul><li>A team of Rural Advisers who can work with you to develop your business </li></ul><ul><li>Access to specialist advice, knowledge and information to assist your business </li></ul><ul><li>The main contact point for services, grants and other support under RDPE </li></ul><ul><li>Tailored on farm advice to improve resource efficiency (R4F) </li></ul><ul><li>To find out more: </li></ul><ul><li>Speak to one of us at the event today! </li></ul><ul><li>Visit: www.businesslink.gov.uk/southwest/rural </li></ul><ul><li>Or: www.sw-ruralgateway.info </li></ul><ul><li>Tel: 0845 600 9966 and ask for a member of the Rural Team </li></ul>The Rural Service and RDPE
  2. 2. SUPPORTING THE FARMING INDUSTRY SUCCESSION PLANNING www.winterrule.co.uk
  3. 3. SPEAKERS: Robert Cowie Partner specialising in advice to the agricultural community John Endacott Specialist Tax Partner David Bullen Corporate Finance Manager
  4. 4. Almost 1/3 of farmers have no succession plan in place. Source: Institute of Chartered Accountants Farm Business Group Survey Autumn 2009 Succession
  5. 5. Reasons for Lack of Succession <ul><li>Inability to attract new entrants </li></ul><ul><li>Insufficient provision made for retirement </li></ul><ul><ul><ul><li>Pension </li></ul></ul></ul><ul><ul><ul><li>Housing </li></ul></ul></ul><ul><li>Non-succession tenancies </li></ul><ul><li>Reluctance to pass down to next generation </li></ul><ul><li>Lack of planning to overcome </li></ul><ul><ul><ul><li>Ownerships/structural issues </li></ul></ul></ul><ul><ul><ul><li>Tax issues </li></ul></ul></ul><ul><li>Will planning not done </li></ul>
  6. 6. Barriers to passing the business on <ul><li>Do the children want it and can you work with them? </li></ul><ul><li>Giving away assets means giving away income derived from them </li></ul><ul><li>Once assets are given away they are outside your control </li></ul><ul><li>Need to consider the stability of children’s relationships </li></ul>
  7. 7. Income for retiring partners <ul><li>Need £20k + (net of tax) to retire on </li></ul><ul><ul><ul><li>- House running </li></ul></ul></ul><ul><ul><ul><li>- Car </li></ul></ul></ul><ul><ul><ul><li>- Food </li></ul></ul></ul><ul><ul><ul><li>- Telephone </li></ul></ul></ul><ul><ul><ul><li>- Holidays </li></ul></ul></ul><ul><li>Existing pension provision </li></ul><ul><li>House (is there a property on the farm?) </li></ul><ul><li>Plan well ahead </li></ul>
  8. 8. Introducing children in stages <ul><li>Employee </li></ul><ul><li>Salaried partner </li></ul><ul><li>Owning partnership assets, but excluding property </li></ul><ul><li>Keep property off the Balance Sheet and grant an FBT </li></ul><ul><li>FBT provides retirement income </li></ul>
  9. 9. 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
  10. 10. /Continued…. Stage 3 – profit share with equal share of partnership assets Profits – Mr 20,000 Mrs 20,000 Son/daughter 20,000 60,000
  11. 11. Transfer of the farm business but retain ownership of the land and property <ul><li>Continue as a partner in the business </li></ul><ul><li>Introduce son/daughter as a partner in to the business </li></ul><ul><li>Grant FBT to the partnership of the farmhouse, land and property </li></ul><ul><li>Agriculture relief for inheritance tax purposes is available due to the FBT </li></ul><ul><li>Gift or sell farm business assets, eg livestock, deadstock, quota, to the new partners </li></ul><ul><li>If sale, repay over a number of years </li></ul><ul><li>Herd Basis – disposal tax free </li></ul><ul><li>No CGT </li></ul>
  12. 12. Use of Limited Company <ul><li>Different classes of shares can be created </li></ul><ul><li>Retain control </li></ul><ul><li>26% and 51% </li></ul><ul><li>You can decide when you give up control </li></ul><ul><li>Transfer of assets to company </li></ul><ul><li>Use of director’s loan account </li></ul><ul><li>Shares can be transferred to the next generation in stages </li></ul>
  13. 13. Inheritance Tax Considerations - Agricultural Property <ul><li>Changing the nature of the asset </li></ul><ul><li>Agricultural property relief </li></ul><ul><li>Agricultural value </li></ul>
  14. 14. Inheritance Tax Considerations - Business Property <ul><li>Plant and machinery / livestock </li></ul><ul><li>Non-agricultural assets </li></ul><ul><li>Integral unit (Balfour case) </li></ul>
  15. 15. Inheritance Tax Considerations - Planning <ul><li>Transfer taxable assets first </li></ul><ul><li>If a gift, need to survive 7 years </li></ul><ul><li>Security on assets </li></ul><ul><li>Balfour case </li></ul><ul><li>OTS review </li></ul>
  16. 16. <ul><li>The current CGT regime </li></ul><ul><ul><li>- Designed to benefit ‘trading’ rather than ‘investment’ activities </li></ul></ul><ul><li>A gift is a disposal for CGT purposes </li></ul><ul><li>Transfer of assets to the next generation – connected persons = gift </li></ul><ul><li>CGT can be avoided </li></ul><ul><li>- Business Assets </li></ul><ul><li>- Agricultural property </li></ul><ul><li>Holdover relief </li></ul>Capital gains tax
  17. 17. <ul><li>Agricultural/business assets only </li></ul><ul><li>To another individual (son/daughter) </li></ul><ul><li>To a trust </li></ul><ul><li>Gift before change of use: </li></ul><ul><li>- Barns for conversion </li></ul><ul><li>- Farm worker’s cottage </li></ul><ul><li>- Land for wind turbine </li></ul><ul><li>- Development land </li></ul>Hold-over relief
  18. 18. <ul><li>Farm land and buildings 1,000,000 </li></ul><ul><li>Originally acquired before 1982 </li></ul><ul><li> Value in 1982 250,000 </li></ul><ul><li>------------ </li></ul><ul><li>Gain 750,000 </li></ul><ul><li>----------- CGT £75,000 ====== </li></ul><ul><li>Gain as above 750,000 </li></ul><ul><li>Hold-over relief (750,000) </li></ul><ul><li>----------- Gain NIL ======= </li></ul>CGT Hold-over relief - example
  19. 19. <ul><li>Occupied by a working farmer to get IHT relief at time of death </li></ul><ul><li>Stay as a partner in the farm </li></ul><ul><li>Or if property owned outside the partnership grant an FBT of the land and house </li></ul>Farmhouses
  20. 20. <ul><li>Furnished holiday lets </li></ul><ul><li>ASTs </li></ul><ul><li>Commercial properties </li></ul><ul><li>Agricultural tied cottages </li></ul>Cottages and Let Property
  21. 21. 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”
  22. 22. “ Put not your trust in money, but put your money in trust…” Sir Oliver Wendell Holmes Sr. (physician, professor and author)
  23. 23. <ul><li>Continuing advantages of trusts </li></ul><ul><ul><li>Prevents fragmentation of ownership </li></ul></ul><ul><ul><li>Control remains in the appropriate hands </li></ul></ul><ul><ul><li>Divorce protection </li></ul></ul><ul><ul><li>Taxation </li></ul></ul><ul><ul><ul><li>Income Tax </li></ul></ul></ul><ul><ul><ul><li>Capital Gain Tax </li></ul></ul></ul><ul><ul><ul><li>Inheritance Tax </li></ul></ul></ul><ul><ul><ul><li>VAT </li></ul></ul></ul>
  24. 24. <ul><li>Try to keep farm intact </li></ul><ul><li>Don’t leave assets to children jointly for them to squabble over </li></ul><ul><li>Pass farm assets to son/daughter who works on the farm </li></ul><ul><li>Pass other non-farm assets to other children </li></ul><ul><li>Use life insurance to try and equalise </li></ul><ul><li>You will not equalise the asset values! </li></ul>Will planning (the accountant’s perspective)
  25. 25. <ul><li>Plan well in advance </li></ul><ul><li>Make early financial provision for retirement </li></ul><ul><li>- Pensions/Investments </li></ul><ul><li>- House </li></ul><ul><li>Where assets have to be sold consider borrowing ability of the business – do not overburden </li></ul><ul><li>If in partnership keep “working” or consider withdrawing </li></ul><ul><li>Timing is crucial </li></ul>Conclusions
  26. 26. RURAL DEVELOPMENT PROGRAMME FOR ENGLAND (2007-2013) David Bullen Corporate Finance Manager, Winter Rule
  27. 27. <ul><li>RDPE </li></ul><ul><li>Current situation </li></ul><ul><li>Moving forward </li></ul><ul><li>Practical tips and support available </li></ul>
  28. 28. 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
  29. 29. <ul><li>The key points: </li></ul><ul><li>Commitment made to continue funding all elements (Axis) under the RDPE; </li></ul><ul><li>Funding will be under pressure for the rest of the Programme period to 2013 in most of the South West Region; but </li></ul><ul><li>Cornwall and the Isles of Scilly retained its existing budget of £55 million - still scope for new projects to be supported; </li></ul><ul><li>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; </li></ul><ul><li>Programme will move towards national delivery arrangements to ensure nationally consistent approach to delivery of RDPE </li></ul><ul><li>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 </li></ul>
  30. 30. What this means - RDPE Funding in Cornwall <ul><li>Axis 1: Improving the competitiveness of the agricultural and forestry sector . </li></ul><ul><li>RDPE funds available under Axis 1for; </li></ul><ul><ul><li>Adding value to agricultural products </li></ul></ul><ul><ul><li>Training and skills </li></ul></ul><ul><ul><li>On-farm advice and small capital grants </li></ul></ul><ul><li>Axis 3: Improving rural quality of life and diversification of the rural economy . </li></ul><ul><li>RDPE funds available under Axis 3 for; </li></ul><ul><ul><li>Farm Diversification </li></ul></ul><ul><ul><li>Rural Micro-enterprise </li></ul></ul><ul><ul><li>Community and Social Enterprise </li></ul></ul>
  31. 31. RDPE moving forwards <ul><li>Transfer to Defra from 1 st July 2011 </li></ul><ul><li>Programme currently open for business </li></ul><ul><li>More information will become available in the coming weeks </li></ul><ul><li>Current team transferring across to Defra. </li></ul>
  32. 32. Top tips: Experience from finance applications <ul><li>Business Case/ Robust projections </li></ul><ul><li>Know what finance is potentially available </li></ul><ul><li>Understand financiers requirements </li></ul><ul><li>Engage with relevant support agencies </li></ul><ul><li>Ducks in a row </li></ul><ul><li>Patience/ End Game </li></ul>
  33. 33. Projections / Robust Business Case <ul><li>Distillation of strategy/ ideas into numbers </li></ul><ul><li>Quantify finance ‘gap’ </li></ul><ul><li>Clarify thoughts on appropriate finance </li></ul><ul><li>Tips </li></ul><ul><ul><li>Use off the shelf package </li></ul></ul><ul><ul><li>Integrate profit and loss, cash flow and balance sheet </li></ul></ul><ul><ul><li>Document assumptions </li></ul></ul><ul><ul><li>Check internal consistency </li></ul></ul><ul><ul><li>Model sensitivity/ risks </li></ul></ul>
  34. 34. RDPE specific <ul><li>Quotes – Time consuming </li></ul><ul><li>Risk assessment </li></ul><ul><li>Match funding support </li></ul><ul><li>Return on investment </li></ul><ul><li>Timescales </li></ul>
  35. 35. ‘ Ducks in a row’ <ul><li>Product/ IP Protection </li></ul><ul><li>Structure </li></ul><ul><li>Route to market </li></ul><ul><li>Finance </li></ul><ul><ul><li>Package! </li></ul></ul><ul><ul><li>Do not forget the bank… </li></ul></ul>
  36. 36. Support <ul><li>Business Link </li></ul><ul><li>Leadership and Management Advisory Service (LMAS) </li></ul><ul><li>Others </li></ul>
  37. 37. LMAS <ul><li>Employ b/w 2 and 249 employees </li></ul><ul><li>Looking to grow the business </li></ul><ul><li>Skills review identify need for assistance </li></ul><ul><li>Grant of up to £1,000 to offset costs of assistance </li></ul><ul><li>Examples </li></ul><ul><ul><li>Financial projections </li></ul></ul><ul><li>Contact: Diana Lobb, Skills South East </li></ul>
  38. 39. <ul><li>LOWIN HOUSE </li></ul><ul><li>TREGOLLS ROAD </li></ul><ul><li>TRURO </li></ul><ul><li>CORNWALL </li></ul><ul><li>TR1 2NA </li></ul><ul><li>TELEPHONE: 01872 276477 </li></ul><ul><li>EMAILS: </li></ul><ul><li>r [email_address] </li></ul><ul><li>[email_address] </li></ul><ul><li>[email_address] </li></ul><ul><li>[email_address] </li></ul>

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