Court of Appeal considers taxation of discretionary payments to LLP members (HMRC v HFFX LLP)

Article summary

Tax analysis: The appeals concerned incentivisation arrangements by an investment management business which transferred its team to an LLP, who became self-employed members of the LLP. Under a deferred profits arrangement, profits were allocated to a corporate member who made investments and the proceeds were then subsequently (following growth over a period) reallocated to the individual LLP members. The issue was whether the amounts reallocated to individuals had a ‘source’ and was therefore taxable under Chapter 8 of Part 5 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005). The Court of Appeal decided that the rights conferred under the partnership deed, combined with the decisions taken in favour of the individuals to reallocate the amounts, was sufficient to amount to a ‘source’ from which the income was derived—it was thus taxable under ITTOIA 2005, s 687 as miscellaneous income. Written by Thomas Hemming, associate and Helen McGhee, partner at Joseph Hage Aaronson...