Mum and dad own a 2/3 share in a property. Their son owns the final 1/3.
Mum and dad are considering a gift of their share to son and wife.
Mum and dad do not live in said property.
Mum, dad and son are partners in their farming partnership.
son intends to remortgage the property and put the funds raised into the partnership. I presume therefore that mum and dad will indirectly benefit from the investment which will benefit the partnership.
Can this be argued to be a reservation of benefit by mum and dad?
Assuming the investment is made at arms’ length and forms part of the sons’ capital account, that may be fine.
I would have thought the greater risk was whether the partnership is paying market rent for the use of the land. If not, that seems to be a clear reservation.
Can you clarify what you mean by “use of the land”? In this case it is just a residential property being gifted. Are you suggesting that if the funds raised from the property following the gift are re-invested in land for the partnership to farm off then the partnership needs to pay rent for that land as indirectly the original Donors of the interest in the property are benefiting by occupation of the new land by the Partnership?
I think there has to be a risk. The proposal on day 1 is that the property will be gifted, mortgaged, and the proceeds introduced into the business.
If the funds are introduced into son’s capital account, you would want to look closely at the drawings and any other entitlements that arise under the partnership to establish who is benefiting from the availability of capital. If the capital buys a combine, for example, which means that the whole farm becomes more profitable, then it must be hard to defeat an argument by HMRC that the property is not being enjoyed to the entire exclusion of the donor and of any benefit to him by contract or otherwise.
Perhaps consider the son and daughter lending the mortgage sum to the partnership, with back to back payments of interest? That is then a much cleaner trail which may help demonstrate there is no benefit being enjoyed by the parents. You will have to be careful not to adjust other partnership drawings to compensate for this.