TaxCorporate TaxFinance Bill changes to affect farming mixed partnerships

Finance Bill changes to affect farming mixed partnerships

Anti-avoidance legislation to be included in the Finance Bill 2014 will affect mixed partnership structures

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.”

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