Setting up a Mixed Partnership Structure?

Setting up a Mixed Partnership Structure?

11:15 AM, 29th September 2021, About 3 weeks ago 5

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My wife and I are both higher rate taxpayers and currently hold a portfolio of 9 BTL properties in joint names. We are familiar with the four structures that we could use to hold & manage the portfolio:
1. In own names (with declarations of trust/ tenants in common to optimally allocate income etc.)
2. LLP structure (with myself and my wife as individual partners)
3. Limited company structure (with myself and my wife as shareholders)
4. Mixed partnership structure (i.e. LLP with myself and my wife as individual partners together with a limited company partner)

The mixed partnership structure is by far and away the optimal structure for our property business, since:
1. I am self-employed through a limited company, which has built up (and continues to build up) surplus capital on its balance sheet. This limited company would become a partner within the mixed partnership structure and contribute capital towards growing the portfolio.
2. The mixed partnership structure would enable us to continue to borrow at favourable mortgage rates compared with the rates available under an equivalent limited company structure
3. The tax savings realised through allocating profits to the limited company partner (compared with our current situation), could be used to reinvest in growing the portfolio or repaying mortgage debt.
4. I work at least 20hr per week on the property business, self-manage the portfolio and have a ‘growth-mindset’

As far as we are aware, there is only one firm out there that is willing to assist in setting up and administering a mixed partnership structure. Consequently, we are reluctant to proceed since:
1. We do not want to be wholly reliant on this single firm for the foreseeable future
2. It indicates that the structure is not a ‘going concern’ from a tax perspective and sooner or later any tax advantages will be eliminated by HMRC.

If anyone knows of at least two firms that are willing to offer the Mixed Partnership structure, then please let me know. It would give me a lot more confidence to proceed down this route.

Thank you

James



Comments

by Neil Patterson

11:23 AM, 29th September 2021, About 3 weeks ago

Dear James,
There is no way of giving specific individual recommendations without completing a full fact find of all your information facts and figures, which is not appropriate on open forum so I would recommend you consider booking a tax consulttaion. please see >> https://www.property118.com/tax/
You may also wish to down load our ultimate guide from that page as well 🙂

I have taken some brief guidance from our team and whilst we can and do set up Mixed LLP’s and can also refer you to several Accountants who are suitably skilled to administer them, a full consultation may explain why it is highly unlikely that we would recommend a mixed LLP based on what we know about his circumstances to date.

I will ask the team to respond in more detail if possible in comments.

by David

11:33 AM, 29th September 2021, About 3 weeks ago

I read the other day that HMRC are now looking into the mixed partnership model as potentially a tax avoidance measure. Can't find the reference though. It was promoted heavily at the landlord shows a few years ago by one of the landlord tax companies and if its true that HMRC are cracking down, I'm surprised its taken this long.

by Alex

12:39 PM, 29th September 2021, About 3 weeks ago

Reply to the comment left by David at 29/09/2021 - 11:33
Whilst there is nothing wrong 'per se' with a mixed member partnership, David is correct that they are very much on HMRC's 'anti-avoidance' radar. The reason for this is that they have historically been - and continue to be - abused to gain an artificial tax advantage.

I'm afraid to say that what James appears to be proposing (i.e. "The tax savings realised through allocating profits to the limited company partner...) sounds very much like tax avoidance. Apportionment of profits from the human Member(s) of an LLP to the Corporate Member(s) of an LLP can ONLY be in proportion to their capital accounts (i.e. the capital they introduced into the LLP). Therefore, if the human Members introduce all the capital in the form of property, none of the 'profits from property rental' can be apportioned to the Corporate Member.

Please, don't take my word for it! Just Google "disproportionate allocation of profits in mixed member partnerships" and read the top two articles by HMRC.

Put simply, a Mixed Member Partnership is almost NEVER the answer to a landlord's problems, which is why we so rarely recommend their use. There are far better business structures available to us and it is those that, in the main, we stick to recommending.

It will only cost you £400 for a Property118 Tax Consultation and if you think the advice you receive is useless, just ask for your money back. You have absolutely nothing to lost, but £Millions to gain!

by Mark Alexander

13:29 PM, 29th September 2021, About 3 weeks ago

I agree with everything that has been said above and also recommend reading the linked article below.

https://www.property118.com/tax/hybrid-tax-structure-landlords-beware/


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