Benefits of a family partnership we had not previously considered

When my twins turned 18 years old I made them both partners in my property rental business and gifted 1% of the beneficial interest in my properties to each of them. We then registered a Partnership with HMRC, which meant I could allocate profits disproportionately to ownership by granting ‘Partners Salaries to each of my children.

The HMRC manual states….

“It is not a requirement of a partnership that each member is physically capable of performing the full range of the activities of the partnership business, but each must be capable of performing a part of the activities”

It goes on to say …

“There may be occasions when a person is described as a partner but is, in actual fact, an employee of the business. For example, the title may be given for prestige. ‘Salaried partner’ is the term usually used to describe such an employee. It is important to be aware, however, that the term may also be used to describe a person who is an actual partner, rather than an employee. For example, the term may be used to describe a partner who receives a first share of the firm’s profits. Whether or not a person is a partner or an employee will depend on the facts.”

My children are most definitely Partners in the true definition as opposed to being salaried employees with the title of Partner because:-

1. They own a stake in the business and hence they are ‘co-adventurers in business’
2. They share income, expenses, profits, losses and risks
3. They are taking an increasingly active roll in the business and will take over completely when I eventually retire

The purpose of forming the Partnership was for business continuity and legacy planning, but it also had tax benefits for me. I have since been allocating profits between the Partners to utilise all of our basic rate tax bands, by granting a ‘Partners Salary’ to my children. This has resulted in me not being affected by the Section 24 restrictions on finance cost relief. Furthermore, the twins are retaining profits within the business, so the value of their capital account is growing whilst mine is either stagnating or reducing. This is also beneficial for IHT planning purposes.

The benefit we had not considered when we completed this planning is that the twins now have a track record of substantial income, which has enabled them to be able to secure a mortgage to buy their own first home. Without being Partners in the business, this would not have been possible for them. There are not many youngsters who are still at Univerity and yet qualify for mortgages to buy property in their own name, but thanks to the guidance given to me by Property118 my children will soon have a foot on the housing ladder themselves.

For anybody who is considering a tax-planning consultation with Property118 I highly recommend it.

Jayne

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