Mixed partnerships should beware new tax rules

Farming partnerships that include a mix of individual members and companies or trustees are being urged to review their business structures to avoid falling foul of new anti-avoidance tax rules.

Elaine Kinsella, head of tax at accountant Old Mill, says the draft legislation seeks to target arrangements where profit is shared between individual partners and a company or trustee to minimise tax.

“Many farmers have a corporate structure which allows them to take advantage of lower tax rates,” she said. “But where that company is also part of a partnership, businesses could find themselves with markedly higher tax bills.”

Currently a taxable profit of £40,000 could be split equally between three individual partners and a company, solely held by the same individual partners. The company would usually pay tax at 20% on its profits, while higher rate individual taxpayers would pay tax at 40%. Under the new proposals, the profit share allocated to the company will be re-attributed to those shareholders who are also individual members of the partnership.

The legislation, part the of Finance Bill 2014, is due to come into force in April and will apply to profits generated from that month.

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