Partnership anti-avoidance provisions

By Tolley

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Partnership anti-avoidance provisions
  • Mixed partnerships and profit allocations
  • Transfers of assets and income streams through partnerships
  • Limited Liability Partnerships (LLPs) and salaried members
  • The settlements legislation
  • IR35 and service companies
  • Disguised remuneration ― employment
  • Disguised remuneration ― self-employment
  • Employment related securities
  • Sale of occupation income

A number of anti-avoidance provisions may be relevant in the context of partnership planning, in particular, when introducing service companies or corporate partners. This guidance note covers some of the key provisions. The rules should be properly applied according to the facts of each case.

Mixed partnerships and profit allocations

A mixed partnership is a partnerships made up of a mixture of individual and non-individual members. Non-individual members are often companies but could also be trusts or even LLPs.


Legislation tackles tax motivated allocations of business profits or losses in partnerships made up of both individual and non-individual members. This is needed because individual members of a partnership may pay income tax at the highest rate of 45% and the 2% National Insurance whereas a corporate member will only pay corporation tax at 19%.

ITTOIA 2005, ss 850C–850E; ITA 2007, s 116A

Therefore, in some cases, it may be possible to allocate excessive profits to a corporate member which would then be subject to lower corporation tax rates rather than higher income tax rates. Further, excessive losses could be allocated to an individual enabling him to benefit from tax relief at income tax rates. These rules allow HMRC to reallocate the profit share of a company to an individual, or reallocate the losses of an individual, where amounts are deemed to be ‘excessive’.

See the Allocation of partnership income guidance note.

Transfers of assets and income streams through partnerships

Where one of the main purposes of an arrangement involving the disposal of assets or income streams through a partnership is to obtain a tax advantage (income tax or corporation tax), the person making the disposal will be subject to income tax (or corporation tax) based on the market value of the asset or income stream.

ITA 2007, s 809AZF; CTA 2010,

More on Planning for partnerships: