LLP or LTD for mixed age Joint Venture

by Readers Question

9:39 AM, 1st November 2019
About 11 months ago

LLP or LTD for mixed age Joint Venture

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LLP or LTD for mixed age Joint Venture

LLP or LTD Co.? We are a group of 4 individuals – all 40% tax payers looking to do a Commercial to Residential flip. Gross Development Value (GDV) £2.2M Net profit £450k (when the last of the 12 Residential units has sold!)

We will be borrowing from friends and family as well as the “banks” and each wish to protect our private lenders privacy (and maybe finding a way to do some legal kind of profit share with them)

Our ages vary from 30 to 65. Two have partners on little or no income. We have very different attitudes to how we each want to use the profits. We don’t want to keep the company after the last unit is sold.

Thus our thinking is to have an LLP. Each of us then set up a Ltd(Limited Liability company)! Each ltd will be a partner of the LLP. Thus the profits will go to each partners limited company. Hence each finds their own way forward for Taxation.

I am aware we will need two people to run the LLP, which will be a low paid role.

Several people, including accountants have said – Hmmm are you sure an LLP is the right way forward?

My accountant said – “Ive got LLP’s on my books, but I’ll have to have a think about this”.

  • Am I asking too much of my accountant?
  • Are LLP’s dead?
  • Have I got it wrong?

Kind regards
Withheld my name as the deal is not yet signed!


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Comments

Neil Patterson

9:46 AM, 1st November 2019
About 11 months ago

This question really has too many factors to consider and too little information to give informed advice even if I was a qualified accountant. We do know a great team though >> https://www.property118.com/member/?id=452

Don't quote me, but an LLP apportions profit depending on share and the individual members pay their own tax depending on their situation, tax codes, retained losses etc. This may be the one simple solution or may not be flexible enough it is very difficult to say and a Ltd company route may be equally valid.

Mark Alexander

12:54 PM, 1st November 2019
About 11 months ago

Based on the very limited information provided I do follow your logic in regards to using an LLP structure for this deal.

However, the advice you require falls outside the scope of that provided by the Property118 tax team, because we specialize in business structure transitions for rental property business. Accordingly, I concur with Neil Patterson’s recommendation for you to engage Pacific Limited Chartered Accountants.

Finally, LLP’s are definitely not dead. In fact, they are becoming more popular than ever, and not just with solicitors and other professional practices who were the first to cotton on to their benefits.

Most accountants do struggle with LLP based tax planning though, so a specialist firm is vital.

Tim

8:17 AM, 2nd November 2019
About 11 months ago

You may want to take some advice from a block management company too, you’ll need to dispose of the freehold interest at the end, to either the leaseholders or a new landlord. If you decide to retain the freehold the communal parts will need to be managed.
Something to think about as the rules around this are tricky to say the least.
It’s usual for the freehold of a building to be in its own limited company.


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