Commentary

I8.337 Family partnerships

IHT, trusts and estates

I8.337 Family partnerships

I8.337 Family partnerships

The creation of partnerships and transfers of partners' interests give rise to special problems where families are involved. The main reasons are:

  1.  

    (a)     There is more likely to be an element of bounty in the arrangements than is the case where the family relationship does not exist1

  2.  

    (b)     Where husbands and wives are involved the related property rules distort the real rights of the individuals for valuation purposes2

  3.  

    (c)     The exemption of gifts between spouses can give rise to valuation problems where third parties are involved3

  4.  

    (d)     Failure to observe normal commercial practices because of the family relationships (for example non-payment of rent by the partnership to the partner who has granted a lease; or failure to reduce the terms of the partnership to writing) can have serious consequences

  5.  

    (e)     There is more danger that adverse arrangements will be entered into due to lack of initial tax planning

  6.  

    (f)     When changes are made in the ratios of income and capital so that the shares of the older generation are diminished and those of the younger increased, it can be very difficult to judge whether there is a gift with reservation of benefit4. This problem does not arise if, even on the hypothesis that there has been a gift with reservation, there will be 100% business or agricultural relief on the reservation ceasing5

For reasons stated above, HMRC will take full account of the terms of the partnership agreement where family partnerships are concerned6. Where partners are not related

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