What is a “mixed” partnership?

What is a “mixed” partnership?

10:41 AM, 14th July 2023, About 10 months ago

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In simple terms, a “Mixed Partnership” is a business whose owners comprise both individuals (people) and companies. Sometimes they are marketed as Hybrid structures.

The two commonly found versions of mixed Partnerships are LLP and ordinary mixed Partnerships. One of the main differences between the two is that LLP’s have limited liability status and are registered with Companies House as separate legal entities. From a taxation perspective, especially for private landlords, they are much the same.

Since around the year 2000, many law firms converted their ownership structure to LLP status.

In the early years, mixed partnerships enjoyed many tax benefits, because it was possible to allocate profits disproportionately between both human and corporate Partners/Members of such Partnerships. Given that profits retained in a company are taxed at significantly lower rates than individuals are the tax benefits associated with a mixed partnership could be very significant. However, HMRC soon got wise to this and created tax avoidance legislation to stop this practice. Today, companies that are members of a mixed partnership can only be allocated a profit share equal to their ownership of the partnership capital. Furthermore, changes in ownership capital within mixed partnerships are taxable For example, if a human partner was to move part if their share of partnership capital to a corporate member they could be subjected to both Capital Gains Tax and Stamp Duty. There is further legislation to prevent company members of a mixed partnership from taking on the servicing of finance costs in order to claim them as expenses that would otherwise be disallowed to human members of the Partnership.

Unfortunately, there are still some companies that choose to lend a deaf ear to HMRC anti-avoidance legislation or pretend to be unaware of its existence. This is a ticking time bomb for businesses who accept their advice because the day of reckoning will arrive and they will have to repay all tax they believed they had avoided, plus penalties and interest costs.

If you are currently operating your rental property business through a Mixed Partnership “Hybrid structure” and you are worried about what you have read above please feel free to use our review process below, which is free of charge.


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