Pre-Budget Review: Changes to the Taxation of Mixed Partnerships in the UK

December 06, 2013

On 20th May 2013 HMRC published a consultation document which proposed major changes to the taxation of partnerships. This was of particular relevance to investment management LLPs – and especially to those LLPs which include corporate members. The consultation included two main proposals: First, to treat “salaried members” of LLPs as employees for income tax and national insurance purposes; and secondly, where a partnership included both individual and corporate members to, in certain circumstances, re-allocate LLP profits attributed to the corporate member to the individual member so that all profits were charged to income tax.

The consultation process ran until 9th August 2013 and a wide variety of representations were made to HMRC by a number of organisations including the investment management industries representative bodies. HMRC stated that draft legislation relating to these changes would be released at or around the time of the Chancellor’s pre-budget review, with a view to such legislation being included in the Finance Bill 2014.

The Chancellor’s pre-budget review was held on 5th December 2013. As part of that review HMRC released on 5th December draft legislation relating to the second of the proposed changes, namely for those partnerships having a mixed membership. It is anticipated that draft legislation relating to the “salaried member” proposed change will be released on 10th December 2013.

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