Property118 very rarely recommend “Mixed Partnerships”, i.e. an LLP with a Corporate Member for the following additional reasons:-
However, the “Hybrid structure” is touted by some advisers as a ‘one-size-fits-all’ solution to the issues associated with finance cost relief and inheritance tax and could very easily result in people falling foul of HMRC’s anti-avoidance legislation.
One example is the “Transfer of Income Streams” legislation under The Finance Act 2009 schedule 25 – please see the link below.
To summarise the legislation; if you transfer part or all of an income stream without also proportionately transferring the underlying business assets any tax advantage is negated.
You should also see the legislation at https://www.gov.uk/government/publications/mixed-membership-partnership-aifms-and-asset-disposal-rules-legislation-day-technical-note-and-guidance/partnerships-a-review-of-two-aspects-of-the-tax-rules, which I have reproduced below.
|1.3.1 Tax-motivated allocation of business profits and losses in mixed membership partnerships
The appropriate notional consideration for services (S850C (15))
This is the arm’s length value of any services provided by that member for the period, less any other amount received for those services (for example, a service fee) that is not part of the profit share.
In most cases, this notional consideration should be no more than the cost to the company in providing the services plus a modest mark-up.
If any services provided involve other members of the partnership, then the value of these services is not included in arriving at the notional return (Section 850C(17)).
B Ltd is treated as providing no services as the only service provided involves another member of the LLP. Therefore, the appropriate notional consideration for services is nil.
As such, B Ltd has an appropriate notional profit of £200, consisting purely of its notional return on capital.
Hopefully, this tutorial will help to alert the industry and deter those who may have otherwise been enticed by those profiteering by promoting high risk schemes. Please share this article via Facebook, email, word of mouth, other social media networks and in any other way you can think of.
Landlord Tax Planning Consultancy is the core business activity of Property118 Limited (in association with Cotswold Barristers).
There will never be an optimal ‘one-size-fits-all’ business structure for tax purposes
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