Farming partnerships are rarely purely commercial in nature - they are rooted in trust, family ties and a shared devotion to the land. But even the strongest partnerships benefit from the right financial and legal foundations.

That is why Jonathan Hayes of Simpkins Edwards and Jonathan Holloway of Trowers & Hamlins have worked together - combining accounting and legal expertise to bring you ten practical tips to help you farm with confidence.

1. Rights and responsibilities: 

Agree and document the rights and responsibilities of the partners. This is too often overlooked but having a written partnership agreement in place before the onset of a divorce or disagreement can be invaluable in protecting all partners and avoiding unexpected claims and losses. A properly drafted agreement ensures that these rights and responsibilities are clearly defined and legally enforceable.

2. Decision-making:

Agree and document the partnership’s arrangements for decision-making. Formal voting arrangements should be set in anticipation that, in the years to come, an older partner might no longer be around, and there may be other family members or spouses in the business. These arrangements should be revisited whenever the partnership changes – for example, on the retirement of a partner or the admission of a new one.

3. Property ownership:

Following tax advice, agree and document the property ownership arrangements. Land and buildings may be owned inside the partnership, or by partners personally, or there may be a combination. Individual family members can have different property interests (or no ownership share). The ‘right’ answer will depend on your family’s circumstances and may change over time. A ‘wrong’ answer may have unpalatable tax consequences. Where changes to property ownership are required, the specialist property team at Trowers & Hamlins can advise and assist with the necessary legal documentation, including transfers or gifts.

4. Legal protection:

All of the above (and much more) should be documented in a legally binding partnership agreement. In the absence of a formal agreement, the law deems all partners to have equal interests in partnership capital and profits. And, without a partnership agreement, there may be endless legal argument as to which assets belong to the partnership in the event of a dispute. The team at Trowers & Hamlins can assist with drafting a new partnership agreement, varying an existing agreement to reflect changes in the business, preparing a deed of retirement when a partner steps back, or formally documenting the admission of a new partner.

5. Income allocation:

Ensure that income is allocated tax-efficiently between the partners. Where unequal, profit shares should be agreed and documented in advance to override the default position under partnership legislation which otherwise assumes that all partners share equally. The team at Simpkins Edwards can advise on the best way to set up profit shares.

6. Herd basis election:

Consider a tax herd basis election for production animals. This generally saves tax in the long run (but can be disadvantageous where an activity is only run for, say, 5 years). A herd basis election can usually only be made on commencement of a business, but there is fresh opportunity to elect when a partner joins or leaves a partnership.

7. VAT:

Take care with VAT. Input VAT can only be reclaimed on costs of the VAT registered entity (so usually only on partnership’s costs) and the costs generally must be incurred in pursuit of making taxable outputs (zero rated or standard rated). Only in limited circumstances can input VAT be reclaimed on costs of property letting. Late filing penalties now apply where VAT returns have been repeatedly submitted late, even for repayment returns.

8. Farmer averaging:

Farmer averaging is invaluable in minimising income tax liabilities. If you are not always in the same income tax rate band, make sure your accountant is considering farmer averaging each year. The team at Simpkins Edwards can discuss topics like this with you as part of their annual service.

9. Double cap pick-up tax:

From 2025, double (and king) cab pick-ups are treated as cars for income tax. Beware that, if you have one and replace it, you will likely have an additional income tax liability in the year of changing (instead of a tax saving). Talk to your accountant first.

10. Regular reviews:

Review your partnership agreement regularly. A partnership agreement is not a ‘set and forget’ document. As your farming business evolves – whether through changes in the partnership, shifts in legislation or adjustments to the farm's structure – your agreement should be kept under review and updated to remain fit for purpose. The team at Trowers & Hamlins are happy to carry out a review of your existing agreement and advise on any amendments required. And Simpkins Edwards will be pleased to advise on tax aspects.

We are very happy to have an initial conversation to discuss your existing arrangements and how we can help. Please do get in touch if you would like to discuss further.

Authors

• Jonathan Hayes, Partner at Simpkins Edwards LLP

• Jonathan Holloway, Senior Associate at Trowers & Hamlins LLP

Disclaimer

Whilst Simpkins Edwards LLP and Trowers & Hamlins LLP are experts in our respective fields, every situation is different and our advice above may not apply exactly to your circumstances. Please consider seeking professional and specific advice when making important decisions about the future of your business or personal affairs.