As featured in The Southern Reporter - www.thesouthernreporter.co.uk
High modern farmland values are the driving force for many of the recurring issues we have cause to discuss with our farming clients. The traditional partnership remains the preferred business structure for many family farming businesses, due to the flexibility afforded, but one such question relates to the implications of the family farm being owned by the partnership, or by the partners personally.
The considerations are partly tax related. Inheritance Tax Agricultural Property Relief (APR) will generally be available regardless of partnership or personal ownership, usually after a two year period of ownership. Some assets, for example let cottages, land let to a renewable energy developer or development land value would not qualify for APR. Business Property Relief (BPR) is required to protect from Inheritance Tax on these assets and is available providing the overall business is mainly trading. The relief is 100% for partnership assets but is restricted to 50% for personally owned assets.
Capital Gains Tax (CGT) is another consideration, particularly if land may be sold, perhaps for development. Generally, it is easier to secure Entrepreneurs Relief and the reduced CGT rate of 10%, if the land is owned personally by the partners and the disposal can be tied in with a reduction in the partnership interest of the land owning partner.
There are non tax issues to consider also. In Scotland, partnership assets are classed as ‘moveable property’ and may require to be devolved under pre-determined succession rules as a result of a ‘legal rights’ claim, which may not be in-keeping with the wishes of the land owner.
In summary, there is potentially an Inheritance Tax advantage in the family farm being owned by the partnership but this should be weighed against potential Capital Gains Tax benefits of personal ownership and any risk of ‘legal rights’ claims.
For advice regarding the issues described in this article, or other tax related matters, Mark Thompson can be contacted on 01573 224391, email email@example.com.
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