If I were approaching this problem ideally I would not start from here! I appreciate that you may not want to overload the question at this juncture; but eventually a deep dive into all the relevant facts is likely to be unavoidable. Like many of my former partners, you may be seeking initially “a quick and dirty”.
1 the 2011 gift. What was the P/L sharing ratio before the gift? It seems to have been 25% for each of 4 partners afterwards. I am trying to identify whether there may have been consideration, in part if not in full, for the transfer. And precisely what was given away and what was retained.
Family farming partnerships are invariably light on documentation. Did GF own the land and originally farm it in hand as a sole trader? How did the partnership come into existence; before the gift or after it and as a result of it? Is there a written partnership agreement? Presumably there are some accounts.
The loss to donor calculation of the transfer of value requires a before and after calculation. GF apparently owned 100% of the farm. With VP unless it was encumbered by a tenancy to a pre-existing partnership. He also owned 100% of the farm business. After the gift of 50% he owned the other 50% of the farm and a 25% interest in the partnership; an English law partnership does not own anything, the partners do; did the gifted 50% become partnership property or was the gift to the son alone? I am going to assume the latter and that since no rent as such became payable by the firm the partners then jointly occupied the land (now owned 50:50) de facto but without any tenancy and so with no security of tenure.
1 The gift could come within s102B FA 1986. The son needs to argue that GF received thereafter no more than a negligible benefit within subsection (4). If so no GROB.
- Any TOV could be reduced if the son gave consideration.
Both 1 and 2 could apply if the son can show that the transfer and the new profit-sharing ratios reflected his commitment to spend a greater amount of time and effort in the business on the authority of AG v Boden[1912] 1 KB 539 and VOA IHT Manual section 3 PN 6https://www.gov.uk/guidance/inheritance-tax-manual/practice-note-6-full-consideration-in-money-or-money-s-worth
If there is a TOV then 100% APR /BPR would perhaps be in point.
The GF may also have ceded profit sharing in the farm business without full consideration. HMRC’s remarkable view is that “No goodwill exists for farming” businesses: IHTM25082. They may mean that it does not exist separately from the land: see CG68010 and VOA CGT etc Manual 7.40-44https://www.gov.uk/guidance/capital-gains-and-other-taxes-manual/section-7. It seems unlikely that a GROB could arise because it is not clear in what property could the reservation subsist, provided the transferees kept their profits and did not pass them back to the donor.
2 The 2019 gift For s102B GF arguably does not occupy the land afterwards as donor but only as a partner in the partnership so that subsection (3) prevents a GROB. If his profit share is excessive there might be an argument that he does so occupy and receives a benefit so that subsection (4) applies and the benefit is not negligible and so causes a GROB. Grandmother’s profit share does not matter here; she is not the donor. An adjustment to GF’s profit share to recognise the rent-free occupation which he enjoys could be a good idea, especially in view of 3 below. This would be a PET under s102(4) FA 1986 requiring 7 year survival but perhaps cost-effective to insure against. Note that there is no proportionality between the value of the offending benefit and the value of the GROB property which is the value at death of the 50% gifted share.
Again it is possible that the son may give consideration for this further transfer on the Boden basis but it does not seem to have been reflected by a contemporaneous change in profit sharing ratios. A subsequent change does not prevent the GROB but does cause the deemed PET.
3 Deaths after 6 April 2026 and GROBS The new £1m APR/BPR allowance will apply to a GROB forming part of the estate of a person who dies on or after this date regardless of when the gift giving rise to the reservation took place if it still subsists at the date of death. You cannot leave GROB property to your surviving spouse or gift it to him or her in lifetime, The PET deemed to occur under s102(4) is not made to any particular person.
The GROB rules largely apply in terrorem. This means that very little learning on their application in practice feeds back to practitioners. For those now forced to engage in sensible tax planning, as recommended by our sanctimonious Government, the available methodology suffers from a veritable miasma of imprecision. E.g what is a benefit and what is negligible. Definitely not prudent to cut it too fine.
In these family situations there is often a weapon of last resort: Proprietary Estoppel. Significantly a slew of recent cases shows that it is possible to prove an anterior promise to give away a farm which can be treated retrospectively as having happened over 7 years ago so that the farm now is owned by the person intended as the transferee. As this is a past fictional transfer it is outside IHT and CGT. The key issue is identifying the promise and its cogency. Like other equitable principles HMRC are unlikely to accept its validity without litigation inter partes but in extremis it may pay to pop off to Chancery for a Part 8 finesse. The master/judge may not agree that the facts support the desired outcome but it seems unlikely that those facts will be in dispute if an IHT saving net of costs swells the estate (provided the relevant promisor has not stupidly given the farm in lifetime or on death to someone other than the alleged promisee so that the outcome and so the facts are actively disputed, adding to costs and a Part 7 procedure).
Jack Harper
| Rmelley Robin Melley TEP Chartered MCSI
14 April |
I hope someone will be able to assist with a couple of questions:
Grandfather gifted 50% of the farm (c£5m) to son in 2011 and carried on working within the ordinary partnership with grandmother, son and daughter-in-law where profits divided 4 ways, with no rent paid by the partnership on the basis that the profits were divided 50:50 between the two households.
Does that arrangement avoid a gift with reservation?
In 2019, grandfather gifted the remaining half share (c£5m) to son, but the share of profits from the ordinary partnership were not altered and no rent was paid by the partnership for the use of the land.
Does that mean there is a gift with reservation on the second half, and does it impact upon the first gift in 2011?
If the grandfather and grandmother paid a rent for a half share of the the market rent on the land from their share of the partnership profits, does that remove the GWR and start the 7 years ‘clock?’
Please bear in mind that I am a financial planner and I am happy to collaborate with a fellow STEP member who is a tax adviser specialising in farming matters.
Thanks you