Legal News | 20.04.26
Farm Partnership Agreements: Why Family Farms Need a Written Agreement
Partnership agreements
If you run a family farm as a partnership, you may be operating on a handshake agreement. Many farming families have done so for generations without any formal written agreement. With the value of agricultural land increasing and changes to Inheritance Tax (IHT) rules that took effect from 6 April 2026, an undocumented partnership could put your business and your farm’s future at risk.
A partnership agreement clearly sets out how your family farming business runs. It defines who owns what, how profits and losses are shared, day-to-day decision-making processes and, rather importantly, what happens when someone retires, falls ill or passes away. Without a partnership agreement, the default rules of the Partnership Act 1890 apply.
Drafted in the Victorian era, these rules are rarely suitable for modern farming businesses with profits and losses being split equally regardless of who has put in more work or capital. Every partner has an equal say in decisions and, most importantly, the partnership automatically ends if one partner dies or wants to leave. The deceased partner’s share may have to be paid out, often forcing the sale of land or livestock at a challenging time.
A well-drafted partnership agreement can help to prevent this, allowing the partnership to continue following a death or retirement. You can set fair, unequal profit shares that reflect actual contributions and include clear rules for buying out a retiring or deceased partner’s share which can avoid expensive disputes.
Why this matters now
The value of agricultural land has risen significantly since the early 2000s meaning that many farms are now worth several million pounds. At the same time, from 6 April 2026, changes to the rules on Agricultural Property Relief (APR) and Business Property Relief (BPR) mean that each person now has a £2.5 million allowance for assets qualifying for 100% APR/BPR. Farming/business assets above this allowance will receive only 50% relief. Spouses and civil partners can combine their allowances, so a couple can pass on up to £5 million of assets qualifying for APR/BPR at 100% free of IHT, but many farms are now approaching or exceeding these limits. In addition to a well drafted Partnership Agreement, it is vital that all the Partners have an equally well drafted Will, which will ensure that the partnership agreement and the Will are aligned.
A partnership agreement can help in two key ways. Firstly, it can ensure the farming business fully qualifies for the reliefs by identifying partnership assets and trading activity. Secondly, the agreement gives you the ability to plan succession, for example, allowing the gift of shares, or by including provisions which seek to keep the farm intact rather than forcing a sale to meet an IHT bill or pay out an estate.
Peace of mind
A partnership agreement may also cover everyday matters including who can sign cheques, how borrowing is approved, how to involve the next generation in the business and how disputes might be resolved outside of court.
Our Agriculture and Landed Estates Team has helped many farming families create practical agreements tailored to their circumstances. With IHT rules tightening and land values increasing, it is time to take action to safeguard your business, reduce tax exposure and ensure that your farm will stay in the family.
If you would like to discuss partnerships, whether you have never had an agreement or your existing one needs to be reviewed, please get in touch with our Agriculture and Landed Estates Team.
