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