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26th November 2012

Farm partnerships accidentally caught by anti avoidance tax

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This affects farmers who:-

farm in partnership, and have added a company as a partner, and own a house within the partnership Often the company will have been added to the Partnership to save income tax by redistributing income to a service company, keeping the farming and the ancillary services separate.

Similarly, farmhouses and other property are often held within the Partnership to increase inheritance tax relief. However, this could backfire under a new law. This new law, proposed to come into force in April 2013, on which consultation has closed but any changes to it post consultation have not yet been announced was designed to catch people who save tax by owning their homes through offshore companies, but it can catch a farmer who was innocent of any such design.

From 1 April 2013, an annual tax charge will be imposed on residential property with a value over £2m which is owned by a non-natural person. The definition of ‘Non-natural person’ includes a company (whether or not UK resident) and partnerships with a corporate partner. There is currently no clause to apportion ownership to allow an exemption where the corporate partner does not own any of the land, so HMRC may include all partnership assets.

Many farmhouses will exceed £2 million already - and more will do so as house prices begin to rise again.

A factor when deciding whether to retain the property in the existing structure may be the level of the annual tax charge, which will depend on the value of the property. In making a decision about the future of the company it is also important to take into account the cost of winding up the structure and the effect on the other taxes.

Do you need to review how you own your farmhouse?

For more information please contact Carolyn Bagley on 01908 247015 or