Rob Davis speaking on the telephone

Real Family Finances

The benefits of speaking to a financial adviser

Bringing in financial experts can help protect a business

Farmers Rob and Jill, who run the Harbury Fields Caravan Park in Leamington Spa, Warwickshire, are keen to call on financial advice experts to help them protect their business. NFU Mutual Chartered Financial Planner Leigh Tollan explains what support they may need.

Running a farm or small business is often a family affair, but families can only do so much financial planning themselves.

There are three key areas which should be looked at — protection, pensions and planning for the next generation.

1. Protecting your family business

It can be hard to contemplate losing someone who is vital to a business, even more so if they are a family member, but it’s important to plan for this possibility.

You should consider what would happen should a key person suffer a serious illness, injury or death and then take steps to protect the future of the family business.

It is important for business partners to have an agreement in place which sets out what will happen in the event of one of the business owners dying or being unable to work through illness or injury.

Putting in place life and critical illness insurances can provide the remaining business partners with the funds to help buy the ill or deceased partner’s share of the business. This gives protection to both parties.

Ensuring all members of the family involved in the business have valid wills in place will also help ensure the ownership of the business ends up in the right hands at the right time.

2. Using pensions to benefit your business

Family business owners and farmers will often plough much of the profit they make back into their business. However, as they reach pension age and decide they want to take a less hands-on role, they can find that the business is their sole investment. This means they continue taking money out of the business to fund their full or semi-retirement.

This can be a financial drain to those taking over, as the business may need to support multiple generations.

Farmers and business owners who invest some of their profits into a pension have an independent source of income which can give them the freedom to enjoy their later years and to gradually hand over the reins of the business to the next generation.

Younger members of the family may also be able to use part or all of their pension to buy commercial property or farmland from the older generations via a self-invested personal pension (SIPP).

The younger generation’s SIPP would own the land or property with the business paying a commercial a rent to use. This could provide the older generation with money to enjoy their own retirement or make provision for other children who are not involved with the business. It is important to take advice to ensure this is planned in the most effective and tax-efficient way.

3. Leaving a legacy for your family

Having spent a lifetime helping to shape and build a family business to be proud of, you want the satisfaction of knowing that you have handed it to the next generation in the best way possible.

It’s never too early to think about succession planning, the earlier you plan the more options you have available. It’s important to involve the whole family and take advice   

Farms and other trading businesses can benefit from reliefs that can reduce or even eliminate Inheritance Tax on qualifying assets. However, the rules are complex with plenty of traps for the unwary.

Speak to the experts

NFU Mutual Financial Advisers can help you and your family plan for the future. Find out more about our Financial Planning Service