It seems a strange question to ask a farmer, who owns their farm? They’ll know, won’t they? Or a business owner, who owns their office or factory?


Owning properties can be complicated enough when there’s no business involved with the interaction of trusts with ownership and the differences between legal, beneficial and equitable titles; but businesses add another layer of complexity.


This is especially true for partnerships. Even if you have no written document headed “Partnership Deed” you may well be farming or running your business in partnership. The 1890 Partnership Act can imply a set form of partnership agreement where the conduct of two or more people is such that its criteria are met. Your needs may be different to those provided for by a 127 year old Act of Parliament however. Central to this is sharing profits or losses from a jointly conducted business. If you get involved in a business and put in cash or receive a dividend you may well be in partnership. If so, having a Partnership Deed setting things out clearly is a good idea.


Inheritance Tax.


How the trading assets of the business are owned can have a big impact on taxation and the availability or otherwise and rate of Business Property Relief (BPR) for Inheritance Tax purposes.


Can you imagine running a business from home, is that a residence (could benefit from additional nil rate band in terms inheritance tax) or business property (could benefit from BPR)? The answers could make a lot of difference to how much Inheritance Tax Nil Rate Band would be available, and how much relief, if any, is available.


There’s also the question of whether business property is owned or used by a Partnership. The reason this is so important is Partnership owned assets that qualify for BPR get it at the rate of 100%, whereas qualifying used assets are at 50%.


With farmers diversifying they are risking taking parts of their assets out of Agricultural Property Relief (APR) and possibly out of BPR as well (that’s a whole different article!) and there may be the need to “top up” with BPR for that part of the farming assets that are over the agricultural value covered by APR. Maximising the potential for BPR (and the rate applicable) also makes sense on farms therefore.


Partnership Assets


So who decides if a partnership owned or used land after your days?


The best way is to check the Partnership Agreement. In the absence of a written partnership agreement (or if it’s silent on this point, or if land or property has been bought after the creation of the agreement without it being updated) all the circumstances will be taken into account including:


    • How was the property acquired and how was that financed?
    • What was the purpose of the acquisition?
    • How was the asset dealt with subsequently?


“Trading as” names on the chequebook and an entry of “freehold land” at some historic value in the partnership accounts is not conclusive in the absence of other evidence. If the other circumstances don’t back that up or worse are contradictory then the question may be one for HM Revenue & Customs to resolve, or the Courts; expensive. So not only is it important to have a Partnership Deed it’s also important to keep it up to date if you buy or sell business property and when you make your Wills…