Farmers and their businesses are currently under unprecedented pressures: rising costs of production, loss of subsidies and family members leaving the industry to name but a few. On the other hand, land and building values remain high and the capital taxes regime continues to favour farmers. Yet, opportunities persist. There is growing potential for diversification and IT based mechanisation. Notably, the industry has also seen a significant increase in female participation.
Every successful farming enterprise needs to have a business strategy and a viable legal framework. There should be clarity as to who is in control and the structure underpinning the business. In many cases, farming enterprises operate on informal arrangements that have evolved over decades. For example, a senior family member may own and manage the land while younger generations contribute significant labour, yet remain excluded from key decisions. A tailored partnership agreement or reallocation of land ownership could rejuvenate the business and provide a clear structure for its future.
The Importance of Succession Planning
Effective succession planning remains critical to the long-term success of farming businesses. With the average age of farmers steadily increasing and younger generations showing less interest in farming, open communication between family members is vital. Clear discussions about the future, facilitated by HK Law Agri specialists and professional advisors, can create a plan that meets the needs of all stakeholders.
Each farm is unique, and a “one-size-fits-all” approach is rarely appropriate. Business owners, land owners and those who farm the land frequently differ. To avoid future legal complications, it is essential to align business and land ownership through updated partnership agreements, company structures, or tenancy agreements. Too often, these agreements are neglected until disputes arise, leading to costly and time-consuming legal challenges.
Maximising Value from Farm Assets
Farm dwellings and other buildings often present valuable opportunities for planning and diversification. Through appropriate and properly documented ownership and use, dwellings and other buildings can attract maximum Inheritance Tax agricultural and business reliefs. Reallocating properties to different family members can also help protect the tax breaks which apply to them. There may be scope for diversification, such as generating rental income from existing buildings or other business use.
Diversification is another key opportunity. Existing buildings can be repurposed to generate rental income or for other business uses, increasing the farm’s financial resilience.
Protecting Assets Through Trusts and Agreements
Formal business structures are not the only way to hold farming assets and to manage them. Trusts established during a lifetime or upon death can safeguard assets for future generations and preserve beneficial Inheritance Tax reliefs. Trusts can also provide a level of protection against relationship breakdowns, such as a divorce involving a family member. Additional security can be achieved through nuptial agreements for children or grandchildren involved in the business.
Disputes within farming families or with others involved in the farm are another significant risk. Well-drafted agreements can help resolve conflicts or provide an exit strategy for dissatisfied parties A growing legal challenge in the sector is Proprietary Estoppel where a person has been led to believe that they will get a benefit down the line and where they have “acted to their detriment “ as a result. For instance, a child who works on a farm for minimal or no pay with the understanding that they will inherit it may not have their expectations fulfilled if the will states otherwise. Proactive legal advice and thorough documentation can prevent Proprietary Estoppel disputes from arising.
Planning for the Future
Ultimately, every farming business must address one fundamental question: “What documents do you have to tell the right story when you are not here to tell it?”
HK Law’s agricultural law specialists can help ensure your farm, business, and estate is legally robust, future-ready, and equipped to overcome challenges while seizing new opportunities.
By Merlin Lewis
