Business Clinic: Can farming business have a company as partner?

Whether it’s a legal, tax, finance or management question, Farmers Weekly’s expert panel can help. Below, Kate Bell, partner, Albert Goodman farms and estates team, advises on the benefits and risks of using a company as a partner in a farming partnership.

See also: Business Clinic: can I claim my late husband’s IHT relief?

Q: Is it permissible to have a limited company as a partner in a private farming partnership and if yes, what are the rules on this?

A: Yes, a limited company, often referred to as a corporate partner, can be a partner in a private farming partnership.

However, such structures need careful consideration because of the mixed partnership anti-avoidance rules. Therefore, if not implemented correctly it can expose the family to wider tax implications.

A partnership with both individual and corporate partners is a mixed partnership. HMRC introduced rules in 2014 to prevent profits being artificially diverted from individuals paying income tax to companies paying corporation tax.

Broadly, the company should receive only an appropriate commercial return for its contribution, whether capital, services, or expertise provided by an individual who is not a partner.

Tax and practical considerations

Historically, corporate partners were attractive because of the tax rate differential. Corporation tax was as low as 19%, compared with individual farming partners paying income tax and national insurance at effective rates of 29%, 42% or 47%.

Allocating profits to the company could therefore produce significant immediate tax savings.

Today, the position is less attractive. Corporation tax is 19% on profits up to £50,000, 26.5% within the marginal relief band (between £50,000 and £250,000) and 25% above £250,000, with associated company rules often restricting access to the lower rates.

The annual tax advantage has therefore narrowed, and there are practical disadvantages.

A mixed partnership, with a corporate partner, cannot claim the 100% first year tax deduction on the cost of qualifying plant and machinery – the Annual Investment Allowance (AIA) – in the same way as a partnership made up only of individuals.

For capital-intensive farming businesses, losing AIA can be a significant drawback.

Other issues include complications with stamp duty land tax (SDLT). Having a mixed partnership can cause SDLT issues when there are transfers of land, buildings and property between partners in the partnership, and where land, buildings, and property are put in or taken out of the partnership.

If the corporate partner loans money back to the partnership, then a corporation tax charge may arise under s455 CTA 2010 at 33.75% (35.75% from 6 April 2026) of the amount lent.

While the charge can be recovered if the loan is repaid in the future there is a significant cash flow issue which needs to be considered.

Consider long term business shape

As with any change in structure, the long term business structure needs to be considered.

A company is likely to grow in value over its time as a partner in the partnership and therefore consideration is needed to how it may ultimately  be wound up, and its treatment for inheritance tax (IHT) purposes.

Retained profits within the corporate partner, after any dividends or remuneration, could eventually be extracted by liquidation and, subject to anti-avoidance rules, qualify for capital treatment with capital gains tax payable.

In some cases, the eventual capital gains tax charge could also be mitigated by a probate uplift on death.

Accordingly, while a corporate partner is permissible, it should have a genuine commercial purpose. If it contributes capital, carries out activities or provides services to the partnership, the structure may still be appropriate.

If its main purpose is simply to shelter profits from higher tax rates, it is likely to attract greater scrutiny by HMRC.

Review existing corporate partners

Farming businesses with an existing corporate partner should review the structure. Many were set up when tax rates and reliefs were more favourable.

A review should consider whether the company still has a commercial rationale, whether profit allocations remain justifiable under the mixed partnership rules, and whether the loss of AIA, SDLT implications, potential IHT charges and eventual extraction costs outweigh any remaining tax benefits.

In summary, a corporate partner remains permissible in a private farming partnership, but it should only be implemented after careful consideration with your professional advisers, and with a careful eye on the long-term plans for the business.

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