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Partnerships Review

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5 December 2013

The changes will affect partnerships, including Limited Liability Partnerships, where the partners or members include both individuals and non-individuals (mixed membership partnerships).There are two elements to this change.

The first will affect mixed membership partnerships where partnership profits are allocated to a non-individual partner (such as a corporate partner) in circumstances where an individual member may benefit from those profits and the profits are considered excessive.

The second will affect cases where partnership losses are allocated to an individual partner, instead of a non-individual partner, to enable the individual to access certain loss reliefs.

When determining whether profits are excessive the new legislation will look at a sum which is an appropriate notional return on capital or an appropriate notional consideration for services.

If an individual is connected to the corporate partner and has the power to enjoy the profits of the corporate partner, the individual may find his profit share being increased by the corporate partner’s profits over and above those considered appropriate.

If a corporate partner receives a profit share for an individual providing services to a partnership, the corporate partner’s profit share may be attributed to the individual as though they were a partner.

The second case relates to losses arising in a partnership where the individual is party to arrangements with the main purpose being for the loss relief to be given to the individual rather than a non individual. The loss relief will be restricted.

The full legislation, which will also cover other changes to the ways partnerships are taxed, is to be released on Tuesday 10 December.  We will provide a more in depth analysis on these pages, once we have had chance to digest the detail.