Transfer of a partnership to an LLP

By Tolley in association with Jackie Barker of Wells Associates
OMB_tax_img

The following Owner-Managed Businesses guidance note by Tolley in association with Jackie Barker of Wells Associates provides comprehensive and up to date tax information covering:

  • Transfer of a partnership to an LLP
  • General taxation implications
  • Demergers
  • Other commercial issues

This note explains the general rules that apply on the transfer of a general partnership to an LLP. Both commercial and taxation aspects need to be considered. For guidance on the incorporation of an LLP, see the How to set up an LLP guidance note.

General taxation implications

Where the transfer of a general partnership to an LLP is undertaken and both the trade and at least one of the partners / members before and after the transfer are the same, it is generally neutral for tax purposes.

The trade of the general partnership is not treated as ceasing and there is no commencement of a new trade within the LLP. Therefore, there is no impact on the members’ notional trade and they continue as if nothing has happened.

Similarly, no balancing charges or allowances arise in respect of the capital allowance provisions and the LLP takes over the assets at their tax written down value.

Where a partner has claimed relief for interest paid on a loan to acquire an interest in the partnership or contribute capital, this will continue provided the conditions for relief still apply, see the Taxation of partnership trading profits guidance note.

BIM82125–BIM82130

HMRC automatically issue unique taxpayer reference numbers for the LLP; see the How to set up an LLP guidance note.

However, HMRC’s guidance continues to confirm that where a transfer takes place during an accounting period, only one partnership return is required and the new LLP need only make one single PAYE return for the tax year in which the partnership transfers.

BIM82120

Where only one partners

More on Limited liability partnership: