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Farmer making son a partner

Confused by partnership agreement

A sole trader farmer wants to bring his son into the business as a partner and has given me the draft partnership agreement from his solicitor to have a look at. The agreement states that 'the property and all items used for the purposes of the business is vested in the father and will not form part of the partnership', which to me means he keeps ownership of all the assets. This makes sense to me as there's no CGT because there's no disposal and as along as he remains active in the business he should get Agricultural Property Relief for IHT. 

Where I'm confused is how would this work on the balance sheet? Before reading the agreement, I would have thought you'd have the sole trader assets and liabilities on one side and on the other, the fathers capital account at the balance sheet value and the son's capital account at zero. If the assets he currently holds aren't going to be part of the partnership do they not appear on the balance sheet? They must do. I've been at my desk a long time today so maybe it will make sense in the morning, but I'd appreciate any helpful insight.

 

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24th Apr 2018 20:31

The key phrase surely is “will not form part of the partnership”. Ergo they don’t appear on the partnership’s balance sheet.

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to johngroganjga
25th Apr 2018 12:20

I can see removing land & building from the balance sheet, but the 'all items used for the business' section I don't understand. Would that include the plant & machinery, stock?

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to daviddaniels
25th Apr 2018 13:32

It probably means all fixed assets, but not stock. Only the partners can tell you how they intend to operate. I would be asking if the father is intending to charge the partnership rent for the assets he is allowing it to use.

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24th Apr 2018 23:12

Given you the draft agreement to look at from what angle? Surely not how the accounts will be prepared?

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to Tax Dragon
25th Apr 2018 12:22

When he said he wanted to take his son into partnership, I told him to get a solicitor to draw up an agreement. His solicitor drew one up and asked for input from me. Presumably in relation to tax.

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to daviddaniels
25th Apr 2018 15:20

Tax-wise, there's good news on APR (there's no requirement for the father to remain active - see s117(b)) but not such good news on BPR (see s104(1)(b)).

John's point re rents could also have a capital tax effect - see s169P(4)(d). It's capital taxes I think you are primarily concerned with. Which includes SDLT, if applicable.

If you were unaware of any of the points I have just made (which are the starters for 10), you probably need to involve someone else with your advice.

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