What lies ahead for farm businesses

Weald of Kent Ploughing Match partners Kreston Reeves and Gullands Solicitors look at what lies ahead for farm businesses. Simon Budden Director of Agriculture at Kreston Reeves looks at what might come up in the budget and how farming and rural businesses should prepare and respond. Catherine Lloyd Partner and Head of the Commercial Team looks at some of the legal issues around business diversification and Sarah Astley, Head of the Corporate Team at Gullands and Simon Budden look at succession planning for the future.

As well as talk of the weather and how harvesting has gone, or is going, the conversation at this year’s ploughing matches is likely to focus on the change in government and the forthcoming budget on 30th October.

The government has pledged to deliver economic stability with tough spending rules to grow the UK economy, but the Prime Minister has also warned that 30th October’s budget is set to be “painful”.

So, what might be in October’s Budget?

What we know already about the Autumn Budget is:

· VAT will be introduced on private school fees from 1 January 2025;

· The Government plans to further tighten the rules for UK resident but non-UK domiciled individuals;

· It plans to change the rules for ‘carried interests’ for private equity, which relates to the remuneration of investment fund managers;

· The Full Capital Expensing scheme is set to be made permanent, which provides full tax relief for qualifying plant and equipment expenditure, incurred by corporate entities.

The Government has plans to stop the tax gap by tackling avoidance and strengthening HMRC’s powers, but this is something we hear from every Government, irrespective of their politics.

In line with the Labour Party Election Manifesto, it is not expected there will be any increase to Income Tax, National Insurance or VAT, and Corporation Tax will not be higher than 25%.

What we don’t know

The Government have identified a £22bn ‘black hole’ in the public finances and have confirmed they will need to increase tax revenues, in addition to the reduction or deferral of expenditure which has been announced. Knowing what won’t change, how might the Government raise the money needed?

The manifesto was silent on Capital Gains Tax, Inheritance Tax and taxation of pensions and relief on pension contributions, together with other more minor taxes. The tax raised from Capital Gains Tax and Inheritance Tax is relatively modest in the context of the overall tax take, but the cost of tax relief on personal pension contributions is very significant.

Farming support

For the farming sector specifically, figures published earlier this month by the Farming and Countryside Programme show a £358m underspend of the agriculture budget for the last three years. The NFU have described this as a “kick in the teeth to farmers and growers who have faced years of uncertainty and loss of income during the agricultural transition.”

The farming minister Daniel Zeichner has said in response to this, “the Government would restore confidence and stability to farmers to boost rural economic growth and strengthen food security.”

With this statement in mind and the aim of protecting farm businesses, it is hard to imagine (but not out of the question) that within the budget both Business Property Relief and Agricultural Property Relief may also come under the spotlight.

The Government has already said as part of its new deal with farmers it will:

· Optimise Environmental Land Management Schemes so they produce the right outcomes for all farmers;

· Seek a new veterinary agreement with the EU;

· Protect farmers from being undercut by lower welfare standards or in trade deals;

· Use government purchasing power to back British produce;

· Set up a new British Infrastructure council to increase private investment in rural areas;

· Speed up building flood defences;

· Introduce a land-use framework.

The Government therefore needs to balance raising money with their stated desire of growing the economy, supporting farmers and the need for individuals to provide for their own retirements, and not relying so heavily on the state.

We will have to wait and see what is announced. All businesses have shown great resilience over the past few years, but what is needed now is some consistency and certainty. Business owners should therefore expect a number of changes that could affect their business, whatever the sector, and we will be able to advise the best way to navigate these changes.

Join us on Friday 1st November at 9.30am and ask our panel of tax and business experts your questions following the Budget announcement on our webinar, register your place here.

Simon Budden can be contacted at simon.budden@krestonreeves.com

Diversification opportunities

All businesses need to change over time and farm businesses are no exception. Structuring this correctly is therefore essential and there could be both legal and tax implications if you get it wrong.

The need to maximise income generating potential means many farm businesses have looked at a range of diversification opportunities, but knowing how to fund and structure them is the key to success.

If you are able to diversify any part of your existing business offering, you need to think about the legal implications for doing this, such as ensuring you have relevant insurance and up to date terms and conditions in place. Also, should the new business be a separate company structure to protect your existing business operations and have different shareholders? You also need to think about some of the regulatory, staffing, training and health and safety requirements of any new operation and the legal framework needed to support this.

If you rent land or a commercial property you will need to check the terms of your lease to ensure that you can diversify your business operations and if in doubt, seek the written permission of your landlord.

The change in government has brought a shift in approach to land use and renewable energy schemes so those landowners who haven’t considered these options or have previously ruled them out might want to look again to see if they can benefit.

Most farm businesses will be considering the replacement schemes for BPS. There are a number of new environmental schemes to grapple with and whatever you decide for your farm, it is important to fully understand the agreements and contracts you are entering into, the terms you will be bound by and how this might impact on your longer-term plans for your land and business as well as lending covenants.

In November, we are co-hosting a seminar for farmers with sites which have Biodiversity Net Gain potential and detailing the opportunities and challenges which BNG agreements

present to rural landowners and developers alike, discussing the likely conservation covenants involved and their practical effects not only for you but also your successors and any buyers, investors, lenders in the future. Register your interest at events@gullands.com

Catherine Lloyd can be contacted at c.lloyd@gullands.com

Succession planning for the future

Farming is a way of life, but every farmer needs to consider what will happen when the time comes for passing on your business and ensuring this transition is well planned and thought-out is important for its future success.

It can be both a daunting and sensitive process, especially if it’s a business you have built up yourself or taken on and grown from the previous generations, or if there is more than one natural successor or non-family business partners.

Therefore, what are the key legal and financial considerations to think about?

For a limited company structure, you should have a Shareholders’ Agreement in place, which sets out what happens to your shares and those of other shareholders when leaving the business. It is likely that there will be provisions giving any other shareholders the entitlement to buy the shares first, so this will need to be addressed and changed, if you would prefer the shares to pass otherwise.

It is important for shareholders and directors to get on with each other as serious differences of opinion or shareholder disputes can damage or destroy a business. For this reason, the right for other shareholders to buy is generally included. If shares are to pass otherwise, please consider whether any incoming shareholders will be able to run the business harmoniously with the existing shareholders.

Also consider if all of the assets and land used by the business are owned by the business or by individual directors or others as this could affect how the business operates in the future.

For a partnership, you should have a Partnership Agreement in place. This will generally provide an option for the remaining partners to buy you out if you wish to leave or

die. Frequently, the option allows the continuing partners to pay over a number of years, with or without interest. This is intended to ease potential cash flow difficulties and enable the continuing partners to continue the partnership. It will not allow for an incoming partner without the consent of the remaining partners. An alternative arrangement would need to be agreed upon.

Both Shareholders’ and Partnership Agreement which include an option to purchase will need to include valuation provisions. You should ensure that an appropriate mechanism is provided.

Good communication about future plans is always important for helping to avoid disputes and it is essential not to shy away from what might be difficult conversations to reach an outcome which is satisfactory for all. Your Will should dovetail with the terms of any Shareholders’ or Partnership Agreements to avoid complications.

Think about the value of your business and whether you are looking to receive a payment for your ownership or whether you are planning to gift it as there will be a number of tax considerations. Some of these might be affected by the budget on 30th October so specialist tax advice should be taken before any final decision or agreement is reached.

Everyone wants to leave a lasting legacy, so don’t be afraid to seek professional help to plan and navigate your departure to ensure the future success of the business.

Sarah Astley can be contacted at s.astley@gullands.com and Simon Budden at simon.budden@krestonreeves.com