Whether you have a legal, tax, insurance, management or land issue, Farmers Weekly’s Business Clinic experts can help.
Here, Peter Griffiths, tax director at Hazlewoods advises on some of the tax implications of restructuring a family farming business.
Q I recently decided to incorporate my farming trading business, but have been informed that moving land from a sole trader business to a company will incur Stamp Duty Land Tax (SDLT), even if gifted.
However, a partnership business transferring to a company does not incur the same liability. If I move the sole trader business into a partnership, how long must we wait before then transferring it into a company to prevent an SDLT charge?
A SDLT is an often overlooked potential cost when reorganising a farming business. When an interest in land is being transferred, this can result in an SDLT liability arising, even if the land is being gifted and no actual consideration is being received.
This is the situation where an individual transfers land to a company that they control, as the transfer is treated as being at market value for SDLT purposes.
Where a partnership trading business has been transferred to a company under family control at the same time as land used in the partnership business, no SDLT arises.
This is the result of a statutory calculation that results in nil consideration. It is advisable to write to HM Revenue & Customs to confirm that they agree in advance of the transaction that no SDLT arises.
No SDLT is due even where actual consideration is paid or debt is being transferred. This can allow entrepreneurs’ relief to be claimed on capital gains on the land, and then effectively amounts can be extracted from the company after incorporation with a 10% tax liability, as the consideration is drawn down.
Where a sole trader business becomes a partnership, if the partnership business is then transferred to a company within three years, SDLT will still be charged because of relevant anti-avoidance legislation. Subject to the facts of the situation, it may be possible to reduce the three-year period.
As with any business restructuring, advice should be taken well in advance of an incorporation to prevent unexpected tax liabilities arising, including SDLT.
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