Whether you have a legal, tax, insurance, management or land issue, Farmers Weekly’s Business Clinic experts can help.
Here, Peter Griffiths, tax director, Hazlewoods advises on farm asset management.
Q My brother, my brother’s son and I farm together as a partnership. My brother and I own land outside the partnership with development potential, which we will shortly transfer into the partnership as we understand this has potential inheritance tax benefits.
However, we have been told there may be a stamp duty land tax (SDLT) cost. Is this correct?
The position would be the same for a transfer between spouses, where debt is also transferred.
A SDLT is payable by the purchaser when acquiring land or buildings, when the consideration exceeds the nil rate band, currently £125,000 for residential property and £150,000 for non-residential.
However, an SDLT liability can occur on a property transfer, even if no consideration is paid.
For example, if a father gifts farmland to a son worth £500,000 and the son agrees to take over a mortgage on the land worth £300,000, then SDLT will be due on the transfer, based on a deemed consideration of £300,000.
Transfer of property into a trading partnership
Certain family members are regarded as “connected” for SDLT purposes. This means that “deemed” transfers between them will not create an SDLT liability.
This will include lineal descendants, siblings and spouses of siblings. However, children of different siblings are not regarded as connected.
So, if farmland and buildings are transferred into the partnership, an SDLT charge could arise even though no consideration has passed.
You are not regarded as connected for SDLT purposes with your nephew, so depending on the profit-sharing ratios in your partnership and the value of land being transferred, the proposed transfer may result in an SDLT liability, even if no debt is being transferred.
Profit-sharing ratios will determine the deemed transfer on which the SDLT charge is based.
Transferring property to a company
Many farming businesses operate as a company, or a company may exist alongside a partnership. Transfers of assets to a company can also have SDLT implications.
When transferring a trading partnership, or part of a trading partnership to a limited company, any land and buildings used in the trade and also transferred will not suffer SDLT under the partnership rules, if the individuals in partnership have the same interests in the partnership and company.
However, there are no such reliefs when transferring property to a company on other occasions. Even if this is by way of gift, with no consideration, an SDLT charge can arise where the transferor controls more than 75% of the company.
Therefore, if an individual who controls at least 75% of a trading company gifts to the company a property or land they personally own but which is used in the company’s trade, SDLT will be due if the value transferred exceeds £150,000.
Advice should be taken before implementing any transfers of property.