Farmland & Planning For The Future

Mum, Dad and son are all partners in a farm where the farmland is owned 50% by Mum and 50% by Dad.  Mum and Dad make Wills under which they pass their respective partnership shares to their son on first death but the remainder of the estate is to pass to the surviving spouse.  Dad passes away first and Mum believes that the farmland (including her house) has passed to her.  However, the farmland was actually held as a partnership asset within Mum and Dad’s capital account of the balance sheet.  Therefore when dad left his share of the partnership to the son this included Dad’s 50% of the farmland.  This may not have been what was intended and could cause problems and in a worst case scenario expensive litigation.

It may be important for tax planning purposes to have the farmland held as an asset of the partnership.  Agricultural Property Relief (APR) is only available on the agricultural value of land.  It is possible that farmland may have a higher value than agricultural value, for example, if the land is considered to have development potential – called hope value.  Business Property Relief (BPR) may be available to assist in this situation.  However if the land is in Mum and Dad’s name then only 50% BPR will be available.  If on the other hand, the land is included as a partnership asset then 100% BPR can be claimed. 

If the land is to be included as a partnership asset we would always recommend having a family farming partnership agreement in place.  This provides evidence and protection for Mum and Dad to ensure that it is made clear that the value of the land lies in their partnership shares.

In an increasing number of cases, the farm is run as a limited company, with the assets being owned outside of the company. It is always sensible to review these arrangements to make sure that there are no unforeseen tax traps waiting for the unwary.

Beverley Jones is a specialist Solicitor in the Rural Practice team at JCP Solicitors headed by Partner Rory Hutchings.   Bev deals with farm succession, complex and more straight- forward Wills as well as Trusts and Estates.  Arguably most importantly, the team advise and work with clients' accountants on the steps to be taken to minimise potential inheritance tax.