david-allen.co.uk 5 Expert legal and accounting advice should always be sought to ensure a properly worded partnership agreement is put in place which reflects all the family’s needs and protects the assets for the future. For more information call Michael on 01228 711888. WINTER/SPRING 2018 Death The Partnership Act stipulates that if a partner dies the entire partnership is dissolved. Instead, an agreement should stipulate that on the death of a partner, the partnership continues with the remaining partners. Expulsion The Partnership Act does not provide for a partner to be expelled. A properly worded agreement should detail the circumstances in which a partner can be expelled, for example bankruptcy, a criminal offence or loss of mental capacity. As the Partnership Act was written in 1890 its archaic provisions are not particularly suited to modern-day working practices and are unlikely to provide a satisfactory outcome for a business today. Tax reasons for having a partnership agreement: Aside from the annual advantage of being able to vary profit allocations between family members in a partnership there are also Inheritance Tax (IHT) incentives to having a carefully worded agreement in place. The availability of Business Property Relief (BPR) can hinge on the wording of an agreement. BPR can exempt 100% of the value of a capital account from IHT when a partner dies. However, if the partnership agreement states that the continuing partners must buy the deceased partner’s interest, this is deemed to be a ‘binding contract for sale’ and all BPR would be lost. To overcome this, cross options need to be included in the agreement. Sue Winters article on pages 10 and 11 provides more information on the availability of BPR. Land with potential development value will have a value in excess of its agricultural value. Since Agricultural Property Relief (APR) is only available against the agricultural value of land, BPR must be relied upon to exempt any excess value. The definition of what is and is not a partnership asset then becomes crucial. If the land is a partnership asset it should attract 100% relief from IHT, but if it is owned personally and used by the partnership, the relief on the excess value would be restricted to 50%.