BIM55070 - Farming in tax law: share farming

Share farming is a method of farming where 2 parties jointly farm the same land (see BIM55075).

Typically a share farming agreement involves the owner or tenant of farm land (the landowner) who enters into a contract with a working farmer (the share farmer).

The detail of a share farming contract is a matter for the parties but often they include the following features,

• the landowner provides the farm land and buildings, fixed equipment and machinery, major maintenance of the buildings and his expertise,
• the share farmer provides labour, field and mobile machinery and his expertise,
• other costs such as seed, fertilisers and feed are shared. If there is a livestock enterprise then ownership of the animals is shared on the basis that each party owns a share in each animal,
• each party is rewarded by a share in the produce of the farm which he or she is free to sell as he or she likes,
• each party produces his own accounts and is responsible for his own tax and VAT returns.

ATTRACTIONS OF SHARE FARMING AGREEMENTS

Share farming enables a landowner to farm as a joint venture with a person who has farming expertise. The landowner may be someone with years of experience of farming the land concerned who now wishes to withdraw from the day to day work on the farm but still take an active interest in how the farm is run. The share farmer may be a neighbouring farmer or someone with agricultural training who does not own land or hold a tenancy but who wishes to farm on his or her own account rather than as an employee or contractor.

Genuine share farming agreements fall short of creating a tenancy or partnership whilst ensuring that the landowner can still enjoy the Inheritance Tax, Capital Gains Tax and Income Tax advantages of being treated as a farmer. The landowner may also be anxious to avoid creating a tenancy because agricultural tenants are hard to remove, and anxious to avoid creating a partnership because that would make him or her liable for the share farmer's debts.