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Latest news and insights

Gillespie Macandrew appoints new partner and promotes 11 others

Gillespie Macandrew announces the promotion of Lorna Balfour to partner in its industry-leading Land & Rural Business team.

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In February, takeaway drivers at a variety of “gig economy” delivery platforms took part in “strike” action to demand better pay and working conditions.

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A spotlight on partnership property and Inheritance Tax

Published: 19 November 2021
Time to read: 3 mins

Partnerships remain the vehicle of choice for many landed estate and farming businesses, and with good reason.  Partnerships in Scotland are a separate legal entity from the individual partners and are recognised and accepted commercially.  A carefully drafted partnership agreement maintains flexibility for a family business structure, and yet affords an element of control through a managing partner where children are entering the business and need guidance.

The Inheritance Tax (IHT) position of partnerships is, at first glance, straightforward.  The value of an individual partner’s interest in a partnership is included in their estate.  However, there are quirks to the tax legislation that warrant further examination to ensure that any IHT relief available is maximised.  There are two key reliefs to consider – Agricultural Property Relief (APR) and Business Property Relief (BPR).

APR is available against the agricultural value of land and buildings occupied by the partnership for the purposes of agriculture.  There are stringent ownership and occupation criteria but broadly speaking, where the partnership farms in hand, 100% IHT relief is available after two years and ownership by a partner or the partnership should not affect the rate of relief.  Where land is let, relief is available at 50% or 100%, dependent on the terms of the lease.

Where the balance of activities within a partnership is mainly trading business as opposed to investment business, BPR may be available.  BPR is viewed as a more valuable IHT relief because it can cover the value of both investment and trading business assets for qualifying mixed partnerships.  BPR is also available to cover hope and development value above the agricultural value.

The ownership of the property is key for BPR purposes.  Where the land and property is owned by an individual partner, but used by the partnership, the rate of relief is 50%.  Where the partnership owns and uses the business assets, the rate of relief is 100%.  This can make a significant difference to an overall IHT liability.

The question arises: do the assets used by the business constitute partnership property?  The answer is not always straightforward and recent cases highlight that a balance of legal and accountancy facts is considered:

  • Partnership agreement
  • Schedule of capital assets
  • Partnership accounts
  • Title to the property. If title is held by a partner for the partnership, a trust deed needs to reflect this.

Top tip: review partnership paperwork to ensure that the ownership position is clear and consistent across all sources.

Remember:  Take full legal and tax advice prior to introducing assets to a partnership.  The additional IHT relief is attractive.  However, one issue on moving land from personal to partnership ownership is that the legal nature of land and property may shift from heritable to moveable which can impact the legal rights position.  Furthermore, moving ownership of land and property is a tax point for Capital Gains Tax and Land and Buildings Transaction Tax (LBTT) purposes and a tax charge could arise if not structured carefully.

If you have any questions on the details outlined in this article, please get in touch with our Tax team.



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