Family farming businesses in the UK which trade as partnerships or sole traders are being urged to plan ahead in case a founding member dies, as it can trigger rules that freeze assets.
There is concern that sole traders and family businesses are assuming that assets can pass down through the generations, when in fact they get put on ice.
Tax and trusts expert Gary Priest, a partner at mfg Solicitors, has urged farming families not to leave it too late, as if a partner loses mental capacity, or dies, it is far more difficult to make arrangements.
He is urging business partners to ensure they have a partnership agreement, along with Wills and Lasting Powers of Attorney, in place, with instructions covering what happens to assets in the event of a death.
He said: “Families in business often wrongly assume that things can carry on when a partner or sole trader dies and that other members become entitled to their loved one’s share.
“It is very important for partners to put a written agreement in place now, while everyone involved has full use of their mental faculties.
“Just as with dealing with a will and having to apply for lasting power of attorney, this becomes much more difficult and distressing if it’s done when someone has started to lose their capability to decide matters for themselves.”
After a loved one’s death, the partnership is automatically brought to an end unless a written agreement is in place and the right steps have been taken.
That means bank accounts are frozen, causing cash flow problems, HMRC issues and difficulties paying the bills.
Mr Priest added: “All the while, suppliers need paying, employees will be entitled to wages and customers will be expecting business as usual. A partnership agreement spares relatives the further heartache of trying to deal with the automatic cessation of a partnership.”
Partnership agreements can determine who will be the successor, how the deceased’s interest is valued and covers potential inheritance tax reliefs and insurance arrangements.