Agricultural Property and Partnership Taxation

SECTION B: ADVISORY REPORT This question is worth 25 marks. You are a tax advisor. Your client, Clara (aged 68), is a sole trader who has run 'Thorne Farms' for the last 30 years. She is reviewing her estate planning and business structure. Clara's current assets include: - 500 acres of agricultural land, farmed in-hand by Clara. - A large farmhouse situated on the land, which Clara occupies. It is the center of the farming operations. - Three cottages located on the edge of the farm, which are let out on assured shorthold tenancies to unconnected third parties. - Farm machinery and working capital. Clara is considering two major transactions: Transaction 1: Partnership Formation Clara wishes to bring her daughter, Sarah, into the business. Clara will transfer 40% of the farming business (including the land, machinery, and working capital, but excluding the let cottages) to Sarah, creating a formal partnership. Sarah will not pay any cash for this share. Transaction 2: Land Sale and Reinvestment Following the partnership formation, the partnership plans to sell 50 acres of the agricultural land to a commercial developer for £2 million, realizing a substantial capital gain. Within 12 months, the partnership intends to reinvest the entire £2 million proceeds into purchasing a new commercial warehouse (to be let out to a logistics company) and upgrading the farm machinery. REQUIREMENTS: Prepare a report for Clara advising on: (a) The Inheritance Tax (IHT) implications of her current estate, specifically evaluating the availability of Agricultural Property Relief (APR) and Business Property Relief (BPR) on the farmhouse, the 500 acres of land, and the three let cottages. (10 marks) (b) The Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT) implications of forming the partnership with Sarah (Transaction 1). (7 marks) (c) The CGT implications of selling the 50 acres of land and the availability of Rollover Relief on the proposed reinvestments (Transaction 2). (8 marks)