Property partnerships

Produced by Tolley

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

  • Property partnerships
  • Outline
  • Property partnership or joint ownership
  • Partnership losses
  • Common structures

Property partnerships

Outline

For income and capital gains tax purposes, partnerships are regarded as being tax transparent ― ie they are not taxed in their own right but instead taxation is applied to the partners.

Accordingly, if the partners are individuals, then much the same considerations apply as for an individual personally purchasing an investment property. If the partners are corporate, then they will be taxed as such. Where individuals and companies are in partnership together, then the calculation of taxable profits must take into account differing rules for income tax and corporation tax. For more information, see the Partnerships ― overview and Companies in partnership guidance notes.

From 2017/18, certain property partnerships, other than limited liability partnerships (LLPs) and those with a corporate partner, may calculate their profits under the cash basis ― see the Simplified cash basis for unincorporated property businesses guidance note.

Profits of a partnership are taxed as they arise and, as with the sole trader, it should be possible to obtain tax relief for interest paid on loans or other finance taken out to buy or improve the premises. Similarly, it should be possible for the partnership to claim tax relief for interest where capital is effectively being withdrawn from the business. For more information, see the Trading profits of a partnership and Allocation of partnership income guidance notes.

From 2017/18, relief for finance costs relating to residential property (in the UK or overseas) is restricted to the basic rate of income tax. The restriction is being phased in progressively over a four-year period with the full impact coming in 2020/21. These measures apply to residential landlords who are subject to income tax on their property income, although non-resident companies are only within the provisions if they act in a fiduciary or representative capacity. Therefore, trustees, personal representatives and individuals are affected.

These rules are limited to residential property

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