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home | Old Articles | What is an LLP and what tax advantag . . .

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What is an 'LLP' and what tax advantages does it have?

Limited liability partnerships ('LLP') were introduced in 2001 and offer a cross between a partnership and company structure. They were mainly introduced to offer large professional firms that trade as partnerships (accountants, lawyers, surveyors etc) the opportunity to benefit from limited liability, just as a company can. Put simply an LLP is a partnership which provides the partners with the benefits of limited liability - thus ring fencing their personal assets from any potential business creditors (just like a company would).

Having said that, the LLP would be subject to the same asset protection limitations as a company would, and if for example the LLP was clearly being used for a fraudulent activity the courts wouldn't hesitate to look at the partners to make good any liabilities.

Partnership Structure

Although in general law an LLP is regarded as a 'body corporate' and is like a company, for tax purposes an LLP is normally treated as a 'partnership'.

Therefore an LLP will normally be regarded as transparent for tax purposes and each member/partner will be assessed to tax on their share of the LLP's income or gains as if they were members of a 'normal' partnership

Therefore if an LLP carries on a trade, each registered partner is taxable on the income they derive from the LLP as trading income.

This is a crucial difference from being a shareholder in a company. A company shareholder is regarded as a separate entity for both legal and tax purposes. An LLP however is a separate legal entity purely in legal terms.

Therefore a company shareholder is not (usually) taxed on the profits of the company, just the cash that is extracted from the company (either as salary/benefits or dividends). A member of an LLP is however taxed on his or her share of the profits that are generated by the partnership. tax planning with LLP's book

For a higher or additional rate taxpayer they would therefore pay 40% or 45% income tax on the LLP profits, whereas a company may pay corporation tax at a lower rate (20%/20.25% or 21%). The problem with a company would be that although the rate of corporation tax is lower than the LLP's income tax rate to get the cash out of the company a further tax charge may then be payable (25% on a dividend extraction from a company for a higher rate taxpayer or an effective 30.55% for an additional rate taxpayer).

It would therefore be only if either cash was retained in the company for business activities, if cash was extracted up to the higher rate tax band or if you were going to extract cash as a non UK resident, that a company could offer significant reduction in taxes on income generated.

Interest relief

In terms of interest relief, where an LLP carries on a trade, the members of the LLP who are individuals are entitled to claim interest relief on the loans they obtain in order to purchase a share in the partnership. There are additional conditions that would need to be satisfied (eg you must remain a partner to the date of the payment of the interest and must not recover capital from the partnership).

Note if the LLP was assessed as undertaking an investment business (eg property investment) no interest relief would be due.

Any interest relief would be claimed on your self assessment return and you could obtain a mortgage for this purpose.

Capital gains tax

As a share of an LLP is treated as a share in a 'normal' partnership, on a future disposal of the partnership the tax treatment would be the same as for a disposal of a partnership interest.

The main relief for a trading partnership is Entrepreneurs Relief. On a future disposal of the partnership you may qualify for the lower 10% rate of CGT.

Note however that this will apply only to trading partnerships. If the LLP was classed as undertaking an investment, Entrepreneurs Relief would not be due. This would effectively increase the CGT rate to 28%.

Other reliefs that a partner in an LLP may be entitled to include rollover relief and gift relief , (which are looked at in other articles).

Inheritance tax

Again, trading partnerships have an advantage as the members interest in this should qualify for business property relief ('BPR'). This can effectively eliminate the value of the partnership interest from the deceased's estate.

One point to watch out for is that if land or buildings are owned personally but are used by a partnership in which you are a partner the rate of BPR is reduced to 50%. If the IHT charge is significant it may be worthwhile considering transferring the land to a discretionary trust, provided the land is worth no more, after the 50% BPR than the nil rate band (currently £325,000).

Therefore in summary, LLP's offer a good 'halfway house' between a partnership and companies and can be very useful.

FREE BOOK: Tax Planning With LLP's
FREE DOWNLOAD - Tax Planning With LLP'sFREE DOWNLOAD - Tax Planning With LLP's
February 2014 Edition
In this guide we look at exactly how an LLP is taxed, before looking at how you can use LLP's to reduce your UK taxes. We cover how LLP's can be used by individuals as well as companies for UK tax pla . . . keep reading

LLP Tax Calculator
If you're interested in using an LLP our completely unique "LLP Tax Calculator" is essential.

Enter your profits and the number of members and it compares the total tax and net receipt if you use an LLP or a Ltd company.

You can access the LLP Tax Calculator here:

LLP Tax Calculator

You may also be interested in our other using a company tax calculators:

Using a company tax calculator

Property company tax calculator

Entrepreneurs relief tax calculator

LLP Articles and Q&A's
Car hire company and LLP - USERNAME: jb - 13/01/2015
Tax Question: Limited company in car hire plans to open a llp as a subsidiary , 75 %owned with profits divided between the holding company and two human partners [ also directors of the holding comp . . . keep reading

UK income tax for non resident partner of LLP - USERNAME: Diamond - 20/11/2014
Tax Question: Dear Sir I would refer you to tax book Non-resident & off-shore tax planning 2014/2015. It is mentioned that 'If an LLP is a mixture of UK and overseas partners, it would be the UK . . . keep reading

Taxation of a UK LLP with non-resident members with UK customers? - USERNAME: wf79 - 18/09/2014
Tax Question: Hi, I am about to leave the UK, making a clean break and setting up a business and taking up residence in Malta. However, I will still have some consultancy clients who are UK based, . . . keep reading

Transfer of BTL properties to LLP or Limited company? - USERNAME: boito_1 - 11/08/2014
Tax Question: Hi, My wife and I have two Buy-to-Let [B2L] properties and our own house, but we are 40% tx payers. All three properties are mortgaged. We are considering another B2L, and wondered ab . . . keep reading

Transfer from LLP to company - USERNAME: Diamondali - 30/07/2014
Tax Question: Our client and his partner trade through an LLP which owns a saloon. Another saloon is owned by a limited company which is again equally owned by our client and his partner. Our clien . . . keep reading

Limited companies as partner in LLP & UK tax - USERNAME:Amji - 08/07/2014
Tax Question: I have a doctors group who are running their consortium as a LLP to run a consultancy business. It has been suggested to them that each doctor forms his own limited company and then ea . . . keep reading

Property development LLP and UK tax - USERNAME: raghad - 03/07/2014
Tax Question: A property development LLP. Its members personally own the property which was bought 2 years ago and now converting into 6 apartments for residential letting. Can the members claim the . . . keep reading

Re:LLP's with corporate members and allocating profits - USERNAME: Kerviel - 26/06/2014
Tax Question: Re: LLPs with Corporate Members Hi Lee Thanks for your previous answer, much appreciated. If you have an LLP as a trading entity and its partners are 2 people [husband and wife] plus . . . keep reading

LLP with corporate member and allocation of profits - USERNAME: Kerviel - 26/06/2014
Tax Question: Hi Lee, When an LLP has a [UK] Ltd Co as one of its partners, how does the Ltd Co account for the income from the LLP? It obviously cannot be included as turnover else there would be . . . keep reading

Liability of LLP - USERNAME: peppino - 16/06/2014
Tax Question: Hi, LLP involved in a trade of goods in Netherlands and Italy but also with fixed assets in UK [properties]. LLP members are non UK residents. The LLP issue capital is 100GBP and report . . . keep reading

UK CGT for LLP on disposal of foreign business - USERNAME: peppino - 09/06/2014
Tax Question: Hi, UK LLP with 2 non resident partners. Main business is software development [80% trnover and trade outside UK with only non uk resident customers and 3 main distributors in Italy] an . . . keep reading

Living in a property in UK held through a LLP - USERNAME: Peppino - 28/04/2014
Tax Question: Hi, I'm going to live with my wife and 2 children in a UK property where the landlord is a UK LLP with a PIF as member. The PIF is registered under NRLS with HMRC and the beneficiaries . . . keep reading

Transferring property via LLP - USERNAME: EFA - 07/04/2014
Tax Question: If a property investor [PI] owning several properties wanted to transfer 50% ito one of their children's [>18] name [C] as tax efficiently as possible, could this solution work: PI int . . . keep reading

Foreign capital and remittance by non dom - USERNAME: peppino - 03/04/2014
Tax Question: Hi, I was resident in Italy in 2013 [fiscal year 1.1.2013 - 31.12.2013] and I will be resident [non dom] in UK for the fiscal year [6.4.2014-5.4.2015]. I have received a large sum in an . . . keep reading

SDLT on transfer from partner to LLP - USERNAME: EFA - 27/03/2014
Tax Question: Dear Sirs, I have an LLP arrangement involving myself, my wife and Corporate Partner. If I introduce rental property with a mortgage [held in joint names between myself and wife] into . . . keep reading

LLP and capital contribution - USERNAME: EFA - 24/03/2014
Tax Question: Dear Sirs, My question relates to the use of LLPs that both invest in residential property and carry out a trade. The LLP is made up of an individual and a corporate partner. Is it p . . . keep reading

Avoiding S455 tax by using an LLP? - USERNAME: EFA - 06/03/2014
Tax Question: Is it possible to counter a S455 charge by using a LLP with a corporate partner and for the member to hold an overdrawn current account in the LLP as opposed to an overdrawn director's . . . keep reading

LLP ownership of UK property - USERNAME: wotamess - 05/03/2014
Tax Question: What are the advantages/ disadvantages of using a LLP for the purchase and operation of a UK property investment where the partners are offshore limited companies? The ultimate owners a . . . keep reading

LLP with partners entitled to different revenue streams - USERNAME: peppino - 24/02/2014
Tax Question: I run a BTL business using an LLP where a non resident corporate partner is the beneficial owner of the property, it is registered for NRLS with HMRC and opted for the wear and tear 10% . . . keep reading

Using offshore company as LLP member - USERNAME: elitefinancial - 21/02/2014
Tax Question: Good morning, I'm wondering whether a UK based LLP with an offshore corporate partner could be used to significantly reduce taxes. Obviously, the Ltd company corporate partner would n . . . keep reading

Offshore foundation and holding in LLP - USERNAME: peppino - 07/02/2014
Tax Question: My UK LLP has as corporate member [a PIF]. I would like to know if in your opinion is possible to add as additional LLP member a Offshore Trust where the LLP is the settlor [it will fun . . . keep reading

FREE DOWNLOAD - Tax Planning With LLP'sFREE DOWNLOAD - Tax Planning With LLP's
February 2014 Edition
In this guide we look at exactly how an LLP is taxed, before looking at how you can use LLP's to reduce your UK taxes. We cover how LLP's can be used by individuals as well as companies for UK tax pla . . . keep reading

Tax treatment of UK LLP with overseas assets - USERNAME: SanctumGlobal - 30/01/2014
Tax Question: UK LLP 1. Can it hold overseas assets? 2. If partners are non resident corporate entities. Will there be Capital Gains Implications? 3. If asset is overseas and it generates rental i . . . keep reading

Non UK resident using UK LLP and UK tax - USERNAME: Non_UK_resident - 09/01/2014
Tax Question: Hello, I hope you can clarify a couple of points for me: my husband and I are both non UK resident working online for a UK based company [testing and editing web content]. We would like . . . keep reading

Tax for UK LLP with non resident partners - USERNAME: leoctt - 30/12/2013
USERNAME: leoctt Tax Question: My questions are related to using an UK LLP formed by non-residents off-shore companies and/or natural persons. This LLP is being formed to provide international serv . . . keep reading

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