Sole trader, limited company and partnership structures each have different implications when it comes to borrowing and asset ownership.

A loan is a common solution when deciding how to finance a purchase. But there are factors to take into consideration when determining whether to take the loan in an individual’s name, in a joint name or in a limited company’s name. But which is best?

Key considerations

  • Registered owner of the land:r it.
  • Who’s paying for the land? The entity generating the income or receiving the profits (ie, the partner) should ideally be the one taking out the loan.
  • Loan agreement name: The name on the loan agreement should match the entity borrowing the money. Mismatches can lead to possible legal and tax complications.

    • Tax implications:

  • If the limited company buys the land, it can pay the loan after paying corporation tax (CT) at 12.5% versus up to 55% for an individual or in a partnership.
  • Remember, land is not like farm buildings or farm machinery where you can get a capital allowance for your expenditure against your taxes. The cost can’t be deducted from your taxable income.

    • Ownership and control

  • If the limited company owns the land, it's a company asset.

  • If an individual owns the land, they have direct control over it.

    • Succession planning: Consider your long-term plans. The person set to inherit the company might not be the same person intended to inherit the land.

    Flexibility for the business: Land can be licensed or leased to a limited company or partnership. The trading entity doesn't have to own the land to use it.

    Life assurance costs:

  • If borrowing through the limited company, you’ll need keyman cover.
  • If borrowing in an individual’s name, the named borrower will need life cover.

    • Timelines: Land loans can typically be structured over a 20-year term, depending on the age of the borrower. Older borrowers may face shorter loan terms or higher repayments, which could impact the feasibility of an individual loan.

    Making your decision on buying land

    There’s no one-size-fits-all answer, but here’s some guidance:

    Obtaining taxation and legal advice from reputable professionals is essential with any potential land purchases, especially if farming through complex structures such as limited companies and partnerships. They can provide tailored advice based on your specific situation and long-term goals.

    If you’re considering personal ownership for succession planning reasons, weigh this against the tax implications of extracting money from the company/partnership to service a personal loan.

    The key is to ensure alignment between who owns the land, who's paying for it, and who's named on the loan agreement.

    This clarity will help you avoid legal and tax pitfalls down the road.

    Every farm is unique, so navigate the finer points with your accountant and set yourself up for success.