Farming partnerships: What you need to know

  • Charles Collingwood as Brian Aldridge (Image: BBC Pictures)

Sally McFadden, lifelong fan of The Archers and Head of Commercial Property at Thomson Bancks, has many years’ experience in the commercial issues of rural life. Here she turns her attention to the opportunities provided by farming partnerships.

Anyone who follows The Archers will know that Brian Aldridge is considering setting up a family farm partnership to deal with the issues of land ownership and succession at Home Farm. Partnerships can protect the long-term interests of a farming family and help pass the business down through generations. However, as the Ambridge residents may soon discover, farming partnerships are complex and can raise a number of questions.

Are all farm partnerships the same?

Organisation of a farming partnership depends on the size and type of farm, the roles of family members in running the farm, and differences in capital contributions. In England, there are 3 types of partnership:

  • Traditional Partnerships: These are the most common and may or may not be formally documented. If nothing is recorded and there is no evidence to the contrary, the partners are entitled to share equally in the capital and profits of the farm business.
  • Limited Partnerships: As the name suggests these provide a way of limiting liability. At least one partner must manage the business and provide an unlimited liability to creditors, however the remainder of partners may restrict their liability to an agreed sum; the downside is that they cannot take part in the management of the partnership business and so this is not always practical.
  • Limited Liability Partnerships: These are still unusual in farming circles, they resemble a limited company but have the organisational flexibility of a partnership. You need at least two members to take responsibility for dealing with the Companies House requirements for filing partnership accounts and so on. Members’ liability can be limited to the extent of their capital contributions, however unlike limited partnerships, members can still take part in management of the business. 

Most farm partnerships fall into the Traditional category, although increasingly we are seeing farms adopt structures providing limited liability. Some farmers have moved away from partnerships altogether, setting up a Company Limited by Guarantee under which liability is limited to the amount members have contributed to the assets of the company.

What do I need to think about when setting up a Farming Partnership?

Assets: You must identify whether assets used for the business will be partnership assets, or will remain the personal property of individual partners. Partnership property’ is owned by the business and shown on the balance sheet, so capital profits and losses will belong to the partnership. If the partnership is dissolved, partnership property may need to be sold to settle debts and liabilities. ‘Separate property’ however belongs to one or more of the partners and is held outside the partnership (and balance sheet) but is occupied and used by the partnership possibly under a lease or licence arrangement.

Entitlements: You need to be clear who owns any existing entitlements and whether these will be partnership assets. Entitlements might need to be transferred to the Partnership before they can be used and restructuring could affect your access to BPS payments.

Expenditure: If attributable to the farm’s business use, this should be borne by the partnership, and your accountant should be able to work out which expenses can be classified as “business expenses”.

Tax planning: Tax reliefs usually influence which assets are included in the partnership. As each family partnership tax position will be different it’s sensible to seek specialist tax advice and make sure that the partnership documents and accounts work together.

Stamp Duty Land Tax (SDLT): If the farm is a Partnership asset, any liability for SDLT will depend on the family connections between the partners. Parent and children partnerships usually avoid SDLT liability but there may be liability if the partnership involves uncles, aunts, nephews, nieces or cousins.

If, like Home Farm, you are considering setting up a farming partnership, your solicitors and accountants should help you find the best structure for your business. 

Sally McFadden is an Associate Solicitor in the Business Services Team at Thomson & Bancks LLP dealing with all commercial property matters for a mix of business, agricultural and not-for-profit clients. She also has niche specialist experience on agricultural matters and energy and renewables. To speak to Sally call 01684 299633 or visit www.tbsolicitors.co.uk