Taxation of UK LLPs

The following Tax practice note provides comprehensive and up to date legal information covering:

  • Taxation of UK LLPs
  • Uses of LLPs
  • General features of an LLP
  • Employment status of individual members of LLPs—the salaried member rules
  • Restriction of loss relief
  • Overall limit on income tax reliefs
  • When is an LLP not tax transparent?
  • What is the capital gains treatment of an LLP that loses tax transparency?
  • Transferring a business to an LLP
  • Group membership
  • More...

Taxation of UK LLPs

A UK limited liability partnership (LLP) is a body corporate for company law purposes, but is generally taxed as though it were a partnership (ie it is tax transparent). This means that where an LLP carries on a trade, profession or business with a view to a profit, its profits and gains will normally be taxed in the hands of its members, rather than being assessed on the LLP itself. Tax transparency also means that the members will be taxed on the LLP's profits and gains at the time they arise, whether or not they have been distributed to the members. In some circumstances, tax transparency may not apply or may be lost, see When is an LLP not tax transparent? below.

Members of LLPs are normally taxed on their share of the LLP's profits following the rules applying to partners in a general partnership, for which, see Practice Note: Taxation of general partnerships. There are specific rules which only apply to LLPs and these specific rules are considered in this Practice Note.

The special capital gains rules for partnerships set out in SP D12 apply to members of LLPs in the same way as for other types of partners, for so long as the LLP retains its tax transparency. For more details on the capital gains rules for partnerships, see Practice Note:

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