While partnership is one option for a route map to retirement, it can still be fraught with issues and consequences
Partnerships enable active farmers to ease towards retirement, but experts have called on them to have the relevant legal documentation and safeguards in place.
While partnership is one option for a route map to retirement for farmers, it can still be fraught with issues and consequences.
The University of Exeter's report on succession found that only one in five farmers planned to retire in full, with the rest planning to work at various levels of intensity to their dying day.
That research also found that over a quarter of farmers had not spoken about succession planning at all and, of those with children, only half had identified a potential successor.
There remains a marked reluctance within the industry to talk about succession.
Accountancy firm Saffery Champness has called on farmers to make sure they have the relevant legal documentation and safeguards in place.
Will Leonard, director of the firm, said: “The lack of a clear legal framework and structuring can cause problems down the line for successors and the farm business alike.
"Entering a partnership is one way that an active farmer can ease back in stages, but the right documentation needs to be in place.
"Although partnerships don’t actually require one, it is best practice for the arrangement to be formally documented with a partnership agreement."
What is the advice?
The farmer’s will should be drafted in conjunction with, or at least with reference to, the partnership agreement, according to Saffery Champness' guidance.
There are several reasons for preparing both documents, and ensuring they complement each other:
• In the absence of a partnership agreement, which would deal with how events following a partner’s death are managed, the partnership will dissolve automatically on the death of any one partner, no matter how many partners remain.
• With no partnership agreement, the farmer’s personal representatives (either their executors if they have named such in a will, or if not then their administrators) can insist that the partnership assets are sold and the funds distributed.
• In the absence of proper documentation, it may not be clear what precisely is comprised in the farm, nor what are partnership assets and what is owned personally by the farmer.
• If there is any conflict, the partnership agreement will take priority over the will, which may not be what the farmer wanted.
• The inclusion of certain clauses in the partnership agreement or the will could inadvertently impose a binding contract for sale on the death of the farmer, which means valuable reliefs from inheritance tax (IHT) will be lost.
• Poor drafting of the will or partnership agreement can also cause the loss of the capital gains tax (CGT) free uplift to market value of the farmer’s interest in the farm partnership on death.