Why tax planning advice is key for agricultural business

Robert Black – Landed Estates and Agricultural Specialist.

Sometimes farming and rural businesses can be overlooked as they are perceived to be low risk clients due to the nature of their businesses, however if there is a generational change or sale of the farm their needs can change and tax planning advice should be taken. In practice they are complex businesses and must be properly managed by an experienced accountant who understands their sector. Offering an explanation on the need for planning advice can often be the key to in depth conversations that uncover future taxation issues and help them plan ahead.  

Proactive advice in areas that are often overlooked can make the difference.  

Questions that should be asked and answered include,  

 

Are the properties partnership properties? 

• Often, they are on the balance sheet, however, have not formally been introduced and have historically been put on the balance sheet by a previous advisor. Case law has shown that assets on the balance sheet is not proof alone of being partnership assets.                               
• Why does this matter? Business Property Relief can be obtained at 100% on partnership assets. Only 50% if held outside the partnership. This can equal substantial relief if there is a future potential that the land can be used for residential development. 

  

Is a Partnership agreement in place?  

       Less than 25% of farming partnerships have a formal agreement. 

• Therefore, reliant on the Partnership Act 1890 

• Profits and capital split equally. 
• If a partner dies – partnership dissolves. 
• Bank accounts frozen. 

  

Do the clients have valid up to date Wills? 

The partnership agreement overrides the Will.  

Have they both been drafted by a suitable experienced solicitor? 

• Usually assumed assets will qualify for Agricultural Property Relief and Business Property Relief – Has this been reviewed? 

• Has the client diversified – are these trades or investments? Now an investment business? 
• Does the farmhouse meet the required tests? 
• Contract Farming Agreements – Genuine or in reality just a lease of the land? 

• Many farming clients have a gross estate on death >£2m and therefore have the Residence Nil Rate Band tapered (often to nil). Has lifetime gifting been discussed to preserve the RNRB? 

• Existing trusts in place – many farming clients have historical family trusts which they may have forgotten to mention. Has this been queried? 

  

If you have any queries or have a client which needs additional advice, please contact our Landed Estates & Agricultural Specialist – Robert Black.