Farming Talk: Plenty of help on managing your tax relief

Farming families are becoming increasingly aware of Capital Gains Tax on partnerships. Most family farms are still run on a partnership basis which can be a tax efficient way to maximise CGT relief.

The main problem often encountered relates to land values which have soared and it is usually the case that there will be capital gains on any disposal.

As many will know the rate of CGT is 18 per cent up to the basic rate limit then to 28 per cent and in some cases 40 per cent applied to the rise in value since acquisition.

Tax is a dry subject until it comes to being faced with a bill. Unfortunately the payment of CGT is not only triggered on sale but it is also triggered on a gift and similar disposal.

When land is transferred between parties (like gifted from parents to children) there is a CGT triggering event. But there is available some CGT relief provided the land is classed as a business asset.

Rollover relief, where the capital gain is rolled over into newly acquired qualifying property is available.

Holdover relief can apply where the gain is held over to those getting the gift who eventually have to pay tax when they sell it. If someone wishes to retire from the business it may be appropriate for Entrepreneur's Relief to apply, in which case CGT is reduced to 10 per cent.

Often the problem is there is no partnership agreement in place to specify what happens when one of the partner or partners wishes to leave.

If this occurs then the leaving partner can generally insist on drawing all their money out of the business at fairly short notice. This can put a huge burden on the remaining partners to find the capital to pay the partner.

It is worse still if land has to be sold or gifted to pay as this can lead to CGT liabilities. A partnership agreement should specify the basis upon which a partner can leave and, for instance, provide for the payments to be spread over a period of years. The land can be put into the partnership on the basis that it may not be owned by all the partners or not owned equally by the partners.

The partnership agreement can help avoid unnecessary disposals triggering CGT which may be brought about by a partner wanting to leave the business.

For advicecontact me on 01746 760825 or s.cor field@fbcmb.co.uk. Visit www.fbcmb.co.uk for further details of all of the services we offer.

Steven Corfield is a Partner and agricultural specialist at Shropshire Law Firm, FBC Manby Bowdler LLP.