The Case Of Ham - Tax Importance of the Partnership Agreement
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of the Ham (bringing home the bacon)
farmland prices having “rocketed” upwards in
value in the last decade and development potential returning through
planning regulations in the summer of 2013, there is greater need to
the land values. It is understood that despite this big worry very few
partnerships have undertaken the work and expense of an up-to-date,
thought through Partnership Agreement.
of the Ham case
Ron and Mrs Jean Ham, husband and wife, started
their farming business in 1966 with a modest 5 hectare plot, and
growing the business from this time onwards. Lower West Barn Farm,
hectares) was purchased in 1986.
Ham (son) joined the farming partnership on 1
October 1997, when the family farm in Frome covered 178 hectares.
Senior described the farm as his ‘only source of
income’ and his ‘legacy to the children’. He hoped that one day John
over the running of the farm. John Ham joined the farm aged 19, and
‘youth and vigour’ for the next 11 years to 2009. In 2009, the three
partnership began to unravel. John wanted to drive the farm in one
and his parents (aged at this stage in their early 70s) disagreed and
to relinquish control. John
‘retired’ from the partnership on 27 February 2009, citing
differences with his parents.
many farming partnerships are there across the UK
are differences that cannot be resolved? Likewise how often is there a
Partnership Agreement that does not provide help, or indeed no
Inadequate Partnership Agreement
the terms of the Partnership Agreement, the other
partners would buyout the leaving partner after 3 months notice of the
intention to quit. It is here that there was the key dispute over the
felt he was entitled
to a share of a full market value
the farm, whereas
and Mrs Ham argued that
their son’s share should be assessed on the book
value of the assets – a far more meagre payout as it ignores
the soaring land values.
dispute occurred because of the poorly worded
Partnership Agreement – what value John was entitled to was a matter of
interpretation, rather than a clear defined value or basis of
specified in the original 1997 Partnership Agreement. One of the Appeal
Judges expressed sadness that a lack of clarity in the Agreement’s
caused so much ‘anxiety and expense’ to the family.
at the ‘anxiety and expense’ to the family
so much at stake why are quality Partnership
Agreements avoided? The cost? The problems of facing very difficult
The parents will only be able to afford the payout by selling thus
initial Court hearing was at Bristol County Court
in March 2013. HHJ McCahill QC, presiding, decided that, as a matter of
interpretation of the partnership deed, John’s share was to be
the same basis as annual accounts were drawn during the continuation of
partnership, rather than on the basis of an up-to-date market valuation
Cost or Market Value?
is the basis under which partners should be paid
out – historic or market value? John appealed this decision and the
before the Appeals
October 2013. On Wednesday 30 October 2013, the three judges ruled that
was legally in the right and that
his parents must be held to the bargain they struck with him 15 years
Lord Justice Lewison said “I reach this conclusion with some reluctance
because, on the particular facts, it may be thought that John will
substantial windfall”. The other two judges also expressed sympathy to
Mrs Ham Senior, but concluded that John was entitled to make a market
difference in farm values between say 1986 and
2013 or indeed 1966 and 2013.
it be that a badly drafted Agreement will result
in such a windfall?
Tax Importance of the Partnership Agreement
potential for dispute is not the only reason for a
well drafted Agreement. There is also the need to identify what is
property and what is ‘partnership’ property for the availability of
opposed to 50% BPR. The tax facts are straightforward – farmland made
to a partnership only achieves 50% Business Property Relief (BPR)
‘partnership’ property achieves 100% BPR.
need BPR to protect so much of the farm.
Examples are development and amenity value, non-agricultural
Plan for Advisers
there is a robust updated Partnership Agreement
in place from the commencement of every farming partnership
all Partnership Agreements, and ensure clarity
has been achieved – the whole Ham case
was triggered because the deed of partnership was not clear on the
value of the
buyout when a partner left the farm
Partnership Agreements do not even provide for an
all parties are aware of the risks that cases
like this exist
steps to ensure all potential business
disagreements are covered by this partnership “wonder document”.
About the Author
by Julie Butler
F.C.A. Butler &
Co, Bennett House, The Dean, Alresford, Hampshire, SO24 9BH.
Tel: 01962 735544. Email: firstname.lastname@example.org.
F.C.A. is the author of Tax Planning for
Farm and Land Diversification (Bloomsbury
Professional), Equine Tax Planning ISBN:
0406966540, and Stanley: Taxation of Farmers
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Article Published/Sorted/Amended on Scopulus 2014-05-23 09:41:03 in Tax Articles