Who owns the farm property?

Published on 11th October 2018

Many UK farms are owned jointly which can cause issues with the question of succession or sale. For example, in some situations, people cannot afford to ‘buy each other out’. If one owner cannot raise funds to buy the interest of other joint owner(s), agreeing to sell might be the only option to release cash. There is also the possibility that some family members may not wish their interest to be acquired by other members.

If the assets are partnership property, these potential issues should be considered and addressed through a partnership agreement. Open and honest disclosure of Wills and intentions between farming partners will greatly assist in the process.

How the farm is owned is important for both Capital Gains Tax (CGT) and Inheritance Tax (IHT). There can be pitfalls, for example if two houses are lived in individually by brothers and sisters but each are owned jointly. In this scenario tax planning and legal assistance should be sought immediately.

Jointly owned assets pass by survivorship unless the owners are recorded as tenants in common. Joint ownership of properties can restrict only or main residence relief for CGT if the farming partners live in different properties when they are sold. A possible solution would be to enter into a partition of interest under which the occupant becomes the sole owner of the property in which they live. Stamp Duty Land Tax (SDLT) or future CGT can be prevented although partitioning can be complicated.

The new 3% SDLT charge on second homes can also result in harsh results if say a son or daughter who are not intending to live on the farm is left a share of the farmhouse.

As with all farm tax reliefs, if you keep trading ‘robustly’ you will achieve the most common tax benefits. When farmers have a Will drafted that leaves farming assets to non-farming beneficiaries it is essential to consider the impact on the continuing farming trade.

If you are not certain about the ownership arrangements for property you have an interest in, then it is as well to check with your solicitor at the first opportunity. Having confirmed the situation appropriate action can then be considered to try and mitigate any potential tax liabilities.