While the guaranteed rental income received from a Farm Business Tenancy is appealing, HM Treasury’s Office of Tax Simplification is currently undertaking a review of inheritance tax (IHT) and the reliefs available. There continues to be concern that this could impact on the availability of Agricultural Property Relief (APR) in the future. (APR currently provides 100% IHT relief on agricultural assets under an FBT).

When structured and operated correctly, contract or share farming agreements will attract Business Property Relief. Although contract farm agreements for arable farming scenarios are fairly common, share farming agreements are particularly well suited to livestock enterprises, but are less familiar.

Share Farming is a type of joint venture in which a farming landowner provides the land, buildings and fixed equipment, and collaborates with a share farmer who provides machinery, labour and some working capital. Both parties maintain separate trading businesses and bank accounts. Usually the value of any breeding livestock is split between the two parties, and all income and expenditure is shared between the parties according to an agreed percentage split. The landowner will typically claim the agricultural subsidies, but the income generated will form part of the agreement.

This type of arrangement benefits both parties, and is a worthwhile option when considering the future of a farm business. The landowner should be able to maintain his status as a trading farmer for the purposes of income tax, capital gains and inheritance tax reliefs, and can retain an active involvement in the management of the farm. The share farmer can manage his own farming business without the significant capital investment in land and buildings. Both parties are likely to bring differing but equally valuable skills, perspective and energy to the arrangement, and it is particularly attractive for new entrants to the industry who may not have sufficient capital to buy or rent their own farm.

In order to be effective, the terms of the share farm agreement should be formalised and documented. Each party will find it useful to draft a budget to support negotiations of a fair split of the gross output from the arrangement. However, it is also essential that the landowner retains an active ongoing interest in the day to day management of the farming enterprise which should include regular and recorded meetings to discuss future strategy, and an involvement in any stock sales and purchases. A good working relationship is essential, and at the end of each trading year, the profits to each business should be reviewed to ensure the arrangement can continue effectively for both parties.

Fisher German are involved with a number of share farming agreements and are well placed to advise on the suitability and then the establishment and ongoing supervision of the arrangement.

Contact Charlotte Gore on 01858 410200 or email here