Inheritance tax and partnerships
The decision to operate a business as a partnership or through an LLP is often tax driven.
Partnerships and LLPs are often described as being “tax transparent” because the income and gains generated by the business are taxed in the hands of the partners or members, rather than taxed both at “entity” level and then again in the hands of the individual owners (as would be the case for a company). Although increased income and capital gains tax (CGT) rates for individuals may now make tax transparency less attractive than in previous years, it may still have advantages in some circumstances. By using a partnership or LLP, there may also be significant employer's National Insurance savings where the highly remunerated individuals are remunerated by way of profit share, rather than salary.
As well as considering the income tax and CGT position, it is important not to overlook the potential IHT implications of a structuring decision. BPR is a generous relief from IHT from which partners of partnerships and, more recently, members of LLPs have greatly benefitted and there is undoubtedly scope to use partnerships and LLPs efficiently to mitigate IHT. However, as will be seen, care is needed to ensure that the availability of BPR is not compromised when making structuring decisions.
Read the briefing in full below.
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