Since the introduction of LLPs in 2001 there has been some aggresive tax planning to make the best use of this structure but these have been dealt a blow in the Autumn statement.
LLPs benefit from the same freedom of a traditional partnership so that profits can be split based on the partnership agreement and commonly based on how much profit is generated by each partner in professional firms such as accountants and solicitors. Rather than having people as partners (strictly members with an LLP) many LLPs have companies as “corporate partners”, these have a number of tax benefits over individuals tax treatment and offer the best of both worlds.
“Flexible profit sharing and tax efficient”
The government have effectively decided to close this loophole by deeming that “excessive” profits cannot be allocated to the corporate partner but must instead be allocated to a specific person who controls that company whether or not they are a personal partner in the LLP. In our view this closes this loophole completely and we expect the following outcomes:
- Corporate partners will gradually be withdrawn from LLPs
- Some exisiting LLPs will be closed and trade transferred to limited companies
- Some LLPs will continue where the flexibility of profit split is required albeit with a less tax efficient structure
This article only provides a brief overview of the impact of the change and you should seek professional advice before taking any steps based on the contents. Full details are contained in the legislation and if you would like advice in this or other areas feel free to call. Alastair Wood, AW Accounting, Gravesend, Kent – Accountants who “speak your language”