2:46 AM, 7th March 2023, About 9 months ago
UK landlords may consider a Partnership structure for a number of reasons, including:
1. Cost: It might be prohibitively expensive to sell properties to a Limited Company for tax planning purposes, especially if HMRC wouldn’t regard them to be qualified as a Business Partnership for at least three years. This is because a significant amount of Capital Gains Tax or Stamp Duty could fall due if reliefs do not apply to the current business ownership structure. The definition of a Partnership is “two or more persons engaged in business”. However, HMRC’s definition of ‘business’ is the commitment of 20 or more hours a week, so some advisers might say it isn’t possible for property investors to form a Partnership if that criteria isn’t met. There is, however, one exception to this; a Limited Liability Partnership “LLP”. This is because an LLP is regarded as both a business and a Partnership, partially because they are separate legal entities and registered at Companies House as such.
2. Tax Benefits: A Partnership structure can offer tax benefits for UK landlords. In a Partnership, profits and losses are shared between the partners, and each partner is taxed on their share of the profits. This can potentially result in a lower overall tax bill for the landlords than if they were taxed as individuals. This can be particularly advantageous between spouses, especially if they fall into different tax bands. Likewise, adult children can also become Partners, but advice on the type of Partnership is highly recommended to avoid traps such as Capital Gains Tax or Stamp duty when forming a Partnership with anyone other than a spouse.
3. Liability: In an ordinary general Partnership, the liability is shared between the partners. This means that if there are any legal claims or debts against the business, the partners are jointly responsible for them. However, with a Limited Liability Partnership, it is perfectly feasible to limit the liability of the business to the assets of the partnership, meaning that the Members of the Partnership do not risk personal assets which are owned outside of the business.
4. Sharing of expertise: Partnerships allow landlords to pool their resources and expertise. This can be particularly beneficial if one partner has expertise in property management, while another has expertise in finance or accounting. By working together, the partners can make better decisions and potentially increase their profitability.
5. Flexibility: A Partnership structure can be relatively easy and inexpensive to set up compared to other business structures. Partnerships can also be flexible, with the terms of the partnership agreement being decided between the partners. This can allow UK landlords to tailor the partnership to their specific needs and goals.
6. Succession planning: A Partnership structure can also offer a clear succession plan for the future. Partnerships can include provisions for what will happen to the business if one partner retires, dies, or leaves the partnership. This can provide peace of mind for the partners and help ensure the continued success of the business.
Related page >>> You might already be in a Partnership without actually realising it – see https://www.property118.com/tax/what-is-a-de-facto-partnership-between-spouses/
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