Partnership Agreements and Succession Planning
What are Farm Partnership Agreements?
Partnership agreements set out in writing the relations between parties carrying on a business. Unlike other business agreements, the nature of a partnership is often a personal, as well as a commercial, relationship which should cover contributions to capital, profit/loss distribution, voting rights, dispute resolution procedures as well as what is to happen on the retirement or death of a partner.
Why are Farm Partnership Agreements Important?
Most importantly, with land rocketing in price recently, the need to protect the value in land is more important than ever and this will only increase as the opportunity to diversify or develop land is set to increase with the changes in planning legislation. With increases in financial value inevitably come increases in disputes, even (and some would argue, especially) within families.
A properly drafted partnership agreement is a good way to manage expectations and reduce potential for conflict.
In terms of tax, it is important to gauge what land is partnership property as opposed to personal property of individual partners, as partnership property will be eligible to 100% Business Property Relief (BPR), whilst farm land merely made available for use by a partnership will only attract 50% BPR relief for IHT purposes. Care must be taken, however, as a poorly drafted partnership agreement may lead to all business property being lost if the pre-emption rights in the agreement are not correctly drafted.
A partnership agreement is very much like a will for a business and needs to be updated from time to time as circumstances change just like wills.
We take a holistic view and work closely with our experienced Private Client Department to make sure that succession plans are smoothly carried out in the most tax-efficient way possible.