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The Importance of Farm Partnership Agreements

Mon 22 June 2020

We're thrilled to welcome Nick Poole, Solicitor at Latimer Hinks, to explain the importance of Farm Partnership Agreements and the areas of your business that will be affected by not having one in place. 


The agreement sets out how the partnership business is to be owned and managed (i.e. who owns what, who does what, with what limits on authority and for what income reward/capital return).

Partners are given the opportunity to set out how they own and how they want to run the business; a well-drawn agreement can help minimise the partners’ exposure and liability to taxes, such as income tax, capital gains tax, , inheritance tax (IHT) and even VAT.


Very probably, what you will therefore have is a partnership at will. In law, the partnership will automatically terminate if any partner gives notice to retire, leaves or dies. If any of these events happen, the farm and other partnership assets will potentially have to be sold.   


Many farmers assume that because they live on the farm and are farmers, regardless of the land use, they will secure agricultural (APR) and business property reliefs (BPR). Both reliefs can, assuming qualification criteria are met, effectively provide an exemption from IHT. However, only by having a formal written partnership agreement can that be achieved.

Thus, tax implications always need to be addressed, particularly:

• at start up;

• when farmland or other assets are contributed to the business as partnership capital;

• and, when the partnership uses assets owned personally by a partner(s).

If the partnership is diversifying, for example, developing solar/windfarm use/a farm shop/caravan park/livery business or refurbishing and letting surplus houses, cottages and barns, there can be a loss of APR. To minimise IHT exposure it can be imperative to maximise BPR. 

The availability (or otherwise) of APR and BPR
will influence what farmland/other assets are treated
as partnership assets and how rental or other
income is treated.  This should be covered in the partnership agreement.

Solicitors and partnership accountants must work together, and valuation advice is often essential.


All business owners should look to where they want the partnership business to be in the future. Can successors (with the right skill sets and abilities) be identified to take forward and protect the business and the family, having regard to objectives, asset ownership, the age profile of the partners?

Partners’ Wills need to be reviewed as they need to align with the provisions of the partnership agreement.


A partnership agreement needs to record what happens if, and when a partner retires or dies and (if and as relevant) any right to transfer an interest
in the business to, say, a spouse/child(ren) and/or existing partners. 

Partners’ Wills, taken with the partnership agreement, can of themselves constitute a very effective succession plan and secure the business, land and other assets for future generations.


Wills and Partnership Agreements are prepared having regard to the objectives and circumstances of the individuals and tax laws of the day. Some objectives, circumstances and tax laws will change over time. 

Wills and Partnership Agreements must be regularly reviewed/updated; we recommend on at least a three/five-year basis.

For further information and advice, please contact:

Nick Poole