Entrepreneurs Relief for Limited Liability Partnerships

Once thought to be the preserve of businesses such as Solicitors and Accountants, Limited Liability Partnerships (LLP) are slowing growing in popularity in the wider business sphere. Companies House statistics report that 10,145 new LLP were formed in the UK in the period 2010/11. Being a half way house between partnership and full company status, LLP carry some of the advantages and disadvantages of both. For example, as the name implies the partners do carry limited liability but the LLP has to be registered at Companies House.

One of the concerns when considering LLP is the position in respect of a Capital Gains tax saving available for those selling a business. Known as entrepreneurs’ relief, the lifetime limit was increased in the 2011 Budget to £10m and allows an effective Capital Gains Rate of 10% on gains within the limit. Those hoping to qualify for entrepreneurs’ relief need to plan carefully as assets and shares need to be held for a period of at least one year prior to disposal.

This one year limit raises questions such as the advisability of transferring shares to other parties, for example family members, and the position in respect of the sale of shares in a wholly owned UK trading company. For example, what would be the position if the LLP owned shares in a trading company and the LLP was subsequently wound up with the shares distributed to individual members?

In general, the answer appears to be that the period of share ownership by the LLP would count towards the individual’s own one year holding period; but only under certain circumstances such as the LLP wind up being informal, not for tax avoidance purposes and not unreasonably prolonged. Satisfying the conditions does require careful tax planning to avoid having to start the one year asset holding period anew.

As tax mitigation specialists Newshams are able to give advice on how tax may affect any private or business transaction and how to put in place an effective LLP strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about how we can reduce your tax costs or e-mail us at enquiries@newshams.com and we’ll get straight back to you.


25th August 2011

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