Partnerships, Limited Companies, and UK Tax Reliefs

Partnerships and Limited Companies

Partnership: A business carried on in common with a view to profit.

Advantages:

• Shared responsibility
• Economies of scale
• Private accounts
• Spread profit for tax purposes

Disadvantages:

• Shared profit
• Joint and several liability
• Disagreements
• All profits taxed

Limited Company: Owned by shareholders, run by directors. It can be a public or private company and is a separate legal entity that pays corporation tax.

Advantages:

• Limited liability
• Perpetual succession
• Corporation tax

Disadvantages:

• Running costs
• Personal guarantees may be required
• Filing deadlines
• Private transactions
• Owner vs. manager conflict (payout or reinvest)
• Privacy (public accounts)

Inheritance Tax - Agricultural Property Relief

Must be occupied for 2 years. Relief is available if the property is owned by an individual but occupied by a partnership or company in which they are a partner or controlling shareholder. Consider the agricultural value of the property (around 70%, see Antrobus case).

Tenanted Farmland:

• Farm Business Tenancy (FBT): 100% relief (nothing for farmland)
• Agricultural Holdings: 50% relief

Woodlands:

• APR if woodlands are ancillary to farming
• BPR if commercial woodland is a business
• Woodland Relief: Can elect to have the value of the timber excluded from the estate, but the beneficiary will pay IHT if the woodland is subsequently sold

Heritage Property:

Property of public interest can be exempted from the estate if an election is accepted. Public access must then be given to the asset.

Brexit Impact on Agriculture

The government will take steps to ensure farms can operate profitably after Brexit, the environment secretary has insisted, as MPs challenged ministers to keep taxpayer funding for agriculture after EU subsidies are withdrawn. Even so, Brexit will negatively affect agriculture because there will be tariffs on exports to the rest of the countries of the EU, and the price of products imported from the EU will be more expensive.

Personal Pensions

• Fully portable
• Pay net
• Contribution limit of 100% of annual earnings, subject to an annual allowance of £40,000
• Ability to invest in more than one pension at the same time
• Self-Invested Personal Pensions (SIPPs)
• Stakeholder schemes: Can contribute £3,600 with no pay, and the government will top up basic rate tax

Occupational Pension Schemes:

• Allowable business cost
• Employer and employee can contribute

Schemes can be:

• Defined benefit: Final salary scheme
• Defined contribution: Money purchase scheme

Most schemes are insured, where the only investments are insurance policies.

SSAS:

Small Self-Administered Schemes used by directors of small companies.