I was reminded this week of the importance of Farm Partnership Agreements, which got me thinking, I wonder how many of my farming clients have reviewed theirs recently? Here are my top 7 reasons to have a partnership agreement.
• The legislation dates back to 1890 so doesn’t exactly reflect current business practices. A partnership is automatically formed when two or more people come together to farm for profit. Without an agreement the legislation is the only fallback provision.
• Control and decision making – two out of three equal partners would take the decision-making power with majority consensus.
• Profit share – is split equally between the partners each year, which could include an increase in value of land, perhaps brought into the partnership by one individual.
• Partnerships automatically end if one partner dies – an agreement can make sure the partnership can continue and keep trading.
• Capital Assets – payments to outgoing partners would be due on exit, which could force a sale. An agreement can provide for deferred payments.
• Business Property Relief - If assets are owned by the farm partnership this would attract 100% BPR on Inheritance Tax as opposed to 50% on assets owned by individual partners, but farmed by, the partnership.
• Litigation on partnership disputes can run into hundreds of thousands of pounds – an agreement can avoid disputes by setting out things like who owns what, what happens when partners want to leave or how it should end.
Author: Melanie Holt