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AIA - Final Nail In The Corporate Partner Coffin

 By

Julie Butler - Expert Author

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24 June 2014

The farming community embraced “corporate partners” with enthusiasm. The fiscal advantage of the corporate partner was providing immediate reduction in 31 January and 31 July income tax payments for the individual partners.

However, the December 2013 legislation on mixed member partnership where excessive profits will be taxed as income is obviously quite a disadvantage to the “corporate partner” structure. Many argue that the return on capital is the answer to the excessive profits problem. Obviously with the Annual Investment Allowance (AIA) increasing to £500k until 31 December 2015 this is a real disadvantage to partnerships which include a corporate partner as such partnerships cannot claims AIAs in accordance with CAA 2001 38A ss3(b). A case which has proved this point is Horadwheel v HMRC.

Separate Limited Company

The current fashion in farming structures is an independent limited company. Indeed there were many who were promoting this structure whilst the fashion for corporate partners was running away with itself. The separate limited company has the advantage of isolating some area of the farming activity without transferring in the land and in so doing having the problems of disallowed Agricultural Property Relief for minority shareholdings etc. Some elements of the farming activity do lend themselves very well and there has been a recent rush of incorporation of the dairy elements of a farming operation.

Incorporation of the dairy operation has the advantage of achieving the tax free uplift on the realisation of the herd at market value and also making sure that the loss on the milk quota is realised on sale. Many are claiming this loss on the milk quota via the CGT negligible value claim as milk quota does cease on 31 March 2015.

There is a very narrow window in which to enjoy the full AIA and much planning should be made for 2014/15 and 2015/16. Obviously there must be caution around the pro rata of AIA where there are non-fiscal year ends and indeed even for fiscal years the AIA of £500,000 is obviously reduced in the tax year 2015/16. There is no doubt that tax advantage can be taken of this.


About the Author

Supplied by Julie Butler F.C.A. Butler & Co, Bennett House, The Dean, Alresford, Hampshire, SO24 9BH.  Tel: 01962 735544.  Email; j.butler@butler-co.co.uk, Website; www.butler-co.co.uk

Julie Butler F.C.A. is the author of Tax Planning for Farm and Land Diversification (Bloomsbury Professional), Equine Tax Planning ISBN: 0406966540, and Stanley: Taxation of Farmers and Landowners (LexisNexis).



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Article Published/Sorted/Amended on Scopulus 2014-07-30 11:00:21 in Tax Articles

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