Business Partnership Death UK (2026): What Happens When a Partner Dies?

Under section 33(1) of the Partnership Act 1890, a general partnership is automatically dissolved on the death of any partner — unless the partnership agreement expressly provides to the contrary. This is the default position: absent any agreement, the surviving partner(s) cannot simply continue the business. The partnership is wound up: assets are realised, debts are paid, and the deceased's share (capital account balance plus any share of goodwill) is paid to their estate. In practice, most professionally drafted partnership agreements include a continuation clause: 'On the death of any partner, the remaining partners may continue the partnership business' — preventing automatic dissolution. Older or informal partnerships often lack such a clause, which can cause serious disruption to an ongoing business on an unexpected death. A well-drafted will for any business partner should also address what happens to their partnership interest.

A modern partnership agreement will typically include: (1) a continuation clause preventing automatic dissolution and giving surviving partners the right to continue; (2) a valuation clause specifying how the deceased's share is to be valued — usually capital account plus a share of goodwill at a defined date, often the date of death or the end of the accounting period; (3) a payment clause specifying when and how the deceased's share is paid to the estate — often in instalments over one to three years to avoid cash-flow disruption; (4) a retirement of the deceased's interest clause confirming the deceased's share is extinguished on payment; (5) a pre-emption provision giving surviving partners first option to buy the deceased's share before it passes to the estate; and (6) a life insurance requirement, obliging each partner to maintain life cover to fund the purchase of their interest on death. Without these provisions, the estate is entitled to the deceased's share but may have difficulty extracting value from an illiquid business interest.

The valuation method depends on the partnership agreement. Where the agreement specifies a method, it is binding: common approaches are (a) book value (capital account balance at the date of death); (b) net asset value (assets minus liabilities at current market values); (c) earnings multiple (capitalisation of the deceased's average share of profits); or (d) a combination. Goodwill is the most contentious element: professional partnerships (solicitors, accountants) often exclude goodwill from the accounts entirely on the basis that it belongs to the partnership collectively and cannot be extracted by a departing or deceased partner; trading partnerships may ascribe a commercial value. Where the agreement is silent, the Inland Revenue/HMRC Share Valuation approach applies: open market value of the interest between a hypothetical willing buyer and seller, taking into account minority discounts, restrictions on transfer, and the profitability of the business. Disputes about valuation are common and often resolved by appointing an independent accountant as expert valuer.

In a general partnership, goodwill is a partnership asset belonging to all partners in their profit-sharing ratio unless the partnership agreement provides otherwise. On a partner's death, whether the estate is entitled to a share of goodwill depends entirely on the partnership agreement. Professional service partnerships (legal, medical, accounting) typically provide that goodwill has no value or belongs to continuing partners without payment — justified on the basis that clients follow individuals, not entities, and inheritable goodwill would be commercially unworkable. In contrast, trading partnerships with established customer relationships, brand value, or commercial contracts may attribute a significant goodwill value to the deceased's share. Where goodwill is purchased from the estate, the payment may be treated as a capital sum in the estate for IHT purposes; business property relief does not apply to goodwill that has been extracted and paid as a lump sum to the estate, only to the qualifying interest while it remains in the partnership.

Yes — a limited liability partnership (LLP) does not dissolve automatically on a member's death, unlike a general partnership under the Partnership Act 1890. An LLP is a corporate body with separate legal personality under the Limited Liability Partnerships Act 2000; it continues to exist regardless of membership changes. On a member's death, their membership ceases and their economic interest in the LLP (their capital account, profit share entitlement, and any loan account) passes to their estate as a debt. The LLP agreement governs the valuation and payment process, exactly as with a general partnership agreement. The deceased's estate does not automatically become an LLP member — the LLP agreement may require consent of all continuing members before the estate can be admitted. Most LLP agreements provide that on death, the deceased's economic interest is realised and paid to the estate without the estate becoming a member. Business property relief at 100% is available on a deceased member's interest in a trading LLP, subject to the 2-year ownership requirement and (from April 2026) the £1 million combined BPR/APR cap.

The deceased partner's share in a general partnership or their economic interest in an LLP is a property interest and can be addressed in a will. However, whether the estate can actually transmit the interest to a beneficiary depends on the partnership agreement: most partnership agreements do not permit the estate to appoint a replacement partner without the consent of the surviving partners. What the estate typically receives is a monetary entitlement to the value of the deceased's share — which is a cash or debt asset that passes under the will in the normal way. The partnership interest itself (the right to participate in management and future profits) is personal and non-transmissible without consent. A specific bequest of 'my interest in [partnership]' in a will is therefore usually interpreted as a bequest of the financial entitlement rather than the right to become a partner. For LLPs, the economic interest is more clearly transmissible as a financial asset, though again the LLP agreement usually distinguishes between the economic right (transmissible) and the membership right (consent required).

Yes — a partner's interest in a trading partnership qualifies for business property relief (BPR) at 100% under section 105(1)(a) of the Inheritance Tax Act 1984, provided the deceased owned the interest for at least 2 years before death. The entire value of the qualifying interest — capital account, goodwill, and profit share entitlement — is relieved at 100%, reducing the IHT charge to zero on that portion of the estate. From 6 April 2026, BPR is capped at £1 million combined with agricultural property relief (APR) at 100%; value above the £1 million cap attracts only 50% relief (effective IHT rate of 20%). BPR does not apply to: purely investment-holding partnerships; partnerships holding investment property; or cash that has accumulated beyond the reasonable needs of the business. The 'wholly or mainly' test: if 50% or more of the partnership's activities consist of investment rather than trading, BPR is denied entirely. A cross-option agreement funded by life insurance written in trust is the most common mechanism for ensuring the funds to pay the estate are available without triggering an immediate IHT charge on the insurance proceeds.