As a landowner you are most probably running a family business. Operating your estate as a farm, for sporting events, or as a tourist destination, you are one of that group of businesses which makes a significant contribution to the economy and accounts for nearly half of our private sector workforce.

But as you will be well aware, running a family business has its own unique set of challenges. Balancing business strategy with personal objectives can be extremely complex. More than in any other enterprise, in a family business issues need to be identified, aired, discussed and managed with great sensitivity and well in advance of any major change.

For many, the matter of succession is one of the most difficult and most important to tackle. What will happen to the business when you retire? When is that likely to happen? What preparations are needed in the meantime to ensure that the change occurs with minimum disruption to the business? Matters are rarely straightforward. If children are not active in the business, decisions need to be made about its future management.

If some family members are interested in pursuing the business and others are not, then how the inheritance of each child is managed, so that they ultimately receive a fair proportion of your estate, can become contentious. The question of timing is also important. You may be reluctant to relinquish control over the business for a variety of reasons – financial security being a good example.

The current tax system, with tax-free capital gains uplift on death and 100 per cent business property relief, is an additional incentive to retain your assets until your death. However, all businesses need to maintain momentum. And in the current economic climate many businesses need to adapt or change. If there are children willing and able to take over, they will have to be motivated to think strategically about the business and to bring new ideas to the table. So there could be commercial as well as emotional pressures to pass on the business during your lifetime, despite the tax consequences.

Once timescales have been decided, two things can happen. If suitable family successors are identified, they can be brought into the business and given the right training and experience to ensure a smooth transition. If there is no successor, you can plan the best ‘exit’ strategy.

As a farmer this might be to bring in a contract or tenant farmer. Alternatively, you might look to sell up, in which case you will need to get the business into good shape to maximise the eventual sale price.

As we are well aware, succession planning requires a strategy to deal with the potential effects of inheritance tax and capital gains tax. Inheritance tax on the transfer of a business will not usually be an issue, given the availability of 100% business property relief on most (but not all) business assets. But if the family home is included, this needs consideration.

Ultimately the overall plan should balance inheritance tax planning with your need for financial security during retirement and still allow flexibility.

Surveys reveal that around half of family businesses have no firm plans for who should take control and how they should handle the changeover. But experience shows that the successful family organisation is the one that looks as far ahead as possible to foresee the challenges and has more time to plan for the future and come up with solutions.

Contact

Gordon Cunningham is a partner at Tods Murray LLP and Head of the firm’s Families in Business team.

Tel 0131 656 2000

Email gordon. cunningham@todsmurray. com