Keeping track of who owns what farmland is of critical importance to the future of a farming business. Gareth Williams, head of Northampton agricultural and rural business team for Hewitsons Solicitors, explains why.
While farming families know the land they farm better than the backs of their hands, sometimes the precise details of ownership can become lost or forgotten.
On a day-to-day basis exactly who owns what is not of great importance.
However, when it comes to planning for the future, or when a life-changing event comes along, these details can be of vital importance.
Establish who the landowner is
Many family farms are acquired in various parts and it is important to know who the legal owner of each part is.
It is the legal owner who makes decisions and signs documents dealing with the land. If that person becomes unwell and loses capacity to do this, it can cause substantial problems.
If land is being sold, for instance, and one of the legal owners is not able to sign the documents, the sale could be held up for months.
The legal ownership should be checked and steps taken to ensure paperwork can be signed, for example, by making sure all owners or other appropriate parties have powers of attorney.
Many farms are now registered at the Land Registry and so the ownership can be checked online or via a solicitor or agent.
If the land is not registered, you will need to look at the title deeds, which, if not at home, may be with your bank or solicitor.
Tips for keeping on top of paperwork
- Check the Land Registry and the deeds to establish who owns the land and who has a beneficial interest in it.
- Consider powers of attorney are in place for legal owners.
- Check partnership accounts and records to see if land is a partnership asset.
- If the partnership agreement is unwritten, get it on paper.
- Check for old tenancies either hidden in the title deeds or created by simple payment of rent.
As well as the legal owner, other people may have a beneficial interest in the land. This can be common in family farms as parents may want to pass a share in the farm down to all their children.
These beneficial owners can have a right to occupy the land and to profit from farming or renting the land, although they will be taxed on their interest.
To undertake proper tax and succession planning, it is therefore important to establish who the beneficial owners are. This is not always evident from the Land Registry entries so you will need to check the title deeds.
Be clear on partnerships
Where a family farm is in partnership you must establish whether the land is held by individuals or the partnership.
If land is partnership property, it is the partners who make decisions about the land. This can have a bearing, for example, on how you draft your will.
If a person makes a gift of the land in his or her will and the land is partnership property then that gift may fail.
It can, however, be difficult to establish whether land is a partnership asset. Start by checking the title deeds. Other factors can be important too; if the land was bought using partnership money it may be a partnership asset.
If this is the case, it should be clearly shown on the accounts with a description to identify the land.
It is also important to have a written partnership agreement – otherwise on the death or retirement of a partner the partnership dissolves. Unless the partners agree otherwise, all assets of the partnership, including the land, could be sold.
Beware unknown tenancies
A forgotten tenancy can have a significant impact. When farmland is passed on to the next generation, either due to a death or a planned succession, a tenancy can reduce inheritance tax relief from 100% to 50%.
When selling land, an unknown tenancy may cause a potential buyer concern. It is after all, the tenant who is entitled to occupation of the farm.
Old tenancies have also been known to cause problems in family disputes when working out how to divide up a farm.
Tenancies of agricultural land can be created either in writing or by unwritten agreement – for example by the payment of rent from occupier to landowner. However, even if rent has not been paid for some time this does not mean the tenancy has ended.
Check the title deeds to see if there are any tenancies that have been forgotten.
Is there any other written agreement or any clauses in the partnership agreement?
Has there been any occupation of the land by another party (even a separate company owned by the farm business) or is there a rent being paid to the landowner?
If there is, then steps can be taken to remove the tenancy or reduce the adverse tax consequences.