Gift with Reservation and existing farming partnership

[simpsonite]

Hi all,
My query relates to a long standing family farming partnership client of mine. ( Dad , Mum & Son)
It was recently brought to my attention by the client that Mum & Dad had gifted a piece of farming land to their son around 7 seven years ago ( just before i took over my practice).
This was originally done for IHT reasons and no thought was given to the CGT aspect ( however the CGT is a secondary issue).

The concern is whether the GIFT W ROB rules would apply here as the gifted land is still being farmed by the partnership ( which currently still includes Mum & Dad).
The concern is that effectively the 7 year clock will need to be reset!
Afterall , Mum and Dad are effectively still farming the land that was gifted to Son.
I am wondering if some sort of lease agreement should have been put in place in order to side step the GIFT W ROB rules in this case.
Or should Mum & Dad now leave the partnership altogether?
Why the solicitor did not review this at the time and advise accordingly is any one's guess.

Can anyone provide some insight into this situation.
Thanks,
Simpsonite

[simpsonite]

... i would add.
It would be reasonable to assume that with the APR /BPR rules as they were then this would not be an issue in any shape or form.
However, with the new APR £1 million per person ( now combining BPR & APR) - this issue has now all of a sudden become problematic!

[AGoodman]

Yes, I can't see any reason why it wouldn't be a GROB unless there were some form of mechanism in the partnership agreement whereby more profits were allocated to the son to reflect the fact that he owned the land being farmed.

That might count as full consideration for the use of the land, albeit I don't know if it would come within s.102A(3) or maybe Sch 20 para 6(1)(a) or be sufficient generally.

If the sums are considerable, it might be one for counsel.

[simpsonite]

I was told yesterday by the client that the family have a partnership agreement in place with 51% in favour of the son. ( 49% to mum & Dad).
I am not sure how this may or may not impact the GWROB rules with relation to the gifted farm land to son??

I am meeting the family & solicitor later this week.
I am hoping the solicitor is able to pick this up further!!

[simpsonite]

.... the profits however for tax purposes have always been split 33.3 between each partner..

[bd6759]

.... the profits however for tax purposes have always been split 33.3 between each partner..

That doesn’t sound right.

[simpsonite]

It might well be the case that the profit share is incorrect( in light of the existing partnership agreement) in order to sidestep GWROB rules on land transfer to son.
I will wait to see how this historical partnership agreement has been drafted.

[simpsonite]

Thanks for your input A Goodman

[AGoodman]

I suspect you are right when you suspected that, if they took advice at all, they were just relying on BPR.