Finance Bill changes to affect farming mixed partnerships

PRACTITIONERS ARE WARNING draft legislation included in the Finance Bill 2014 could affect mixed partnership structures.

Partnerships that include a mix of individual members and companies or trustees will be targeted to discourage the tax-motivated practice.

In many cases, individual partners have reduced their own income tax liability by diverting partnership profits to a non-individual partner – typically a company or trustee, which pays a lower rate of tax on its profit share.

For example, a farming partnership with a taxable profit of £40,000 is 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.

Old Mill tax manager Anne Gardner-Thorpe said: “Broadly, this draft legislation seeks to override these profit sharing agreements, so that the profit allocated to the non-individual member is taxed on those individual partners who stand to benefit from the non-individual’s profit.

“Partnerships are traditionally the most common business structure for farming families, many of which also include a company partner.”