Rural Land Holdings and Businesses - Putting the (Farm) House in Order

Many rural businesses are family affairs. Very little attention is given to getting the structure right – particularly in relation to the ownership of the farmhouse and land.  As further generations are added, the problems become more complex and difficult to unravel.  Now is the time to sort them out, even if this involves passing through the pain barrier to do so.

The available solutions depend on whether your business is a partnership or limited liability company, how long it will be before the oldest generation wants to retire, and the tax implications of the proposed way forward.  The only certainty is that these problems will not go away and you will have to face them at some time.  You ought to deal with them at a time which suits you, and not when the need for action is forced upon you for financial, retirement or family fall-out reasons.

Even if you cannot resolve all your problems at once, you ought to consider some basic changes.  A typical example is the removal of your residential property from the partnership.  The farmhouse does not need to be a partnership asset.  If you and your brother occupy two separate farmhouses both of which are owned by your farming partnership, why not take each house out and put them in your separate names?  At least you know that if anything should go wrong with the partnership after that, your home is not caught up in the crossfire.

With many rural properties, taking a property such as a farmhouse out of the partnership requires very carefully drawn plans to show exactly where the boundaries are, together with complicated rights such as rights of way or rights to lay drains or cables to ensure that the farmhouse and whatever land is transferred with it can operate separately from the rest of the landowning.  Many rural properties have restrictions tied to agricultural use.  The long-term viability of the whole farming operation also needs to be factored into the equation.

Equality and fairness are often issues with restructuring of this type.  Is your brother’s house worth the same as yours?  If not, should some land be moved with the farmhouse to equalise the value?  Taking farmland out of the partnership may not seem attractive but just because the ownership moves elsewhere does not stop the farming business from using it, perhaps under a farm business tenancy or a grazing agreement.

If you have a mortgage over the farm, the lender will have to agree to any changes and may require different funding arrangements to be put into place. 

None of this is straightforward.  It is the sort of thing which people put off until manãna.  If you are reading this and saying “Yes I need to do something,” but then go off sowing your next crop, all I ask is that you cut out this article and put it in a place where you will see it every day – until you get sick of it and do something about it - a bit like making or updating your will which you probably also need to do!   However, it is better to act now; lawyers will make far more money sorting out problems in the future, which could be avoided by reorganising things now. 

To contact Raworths, telephone 01423 566666 or visit our offices at Eton House, 89 Station Parade, Harrogate HG1 1HF. Alternatively you can email Mike - mike.sheldon@raworths.co.uk