Partnerships ― overview

Produced by Tolley

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

  • Partnerships ― overview
  • Tax treatment of partnerships
  • Overseas partnerships
  • Types of partnerships
  • General partnership
  • Limited partnerships
  • Limited liability partnerships
  • Scottish partnerships
  • Types of partner
  • Corporate partners
  • More...

Tax treatment of partnerships

All UK partnerships are treated as transparent for tax purposes ― including LLPs and Scottish partnerships, despite the fact that they have a legal personality. This means that one ‘looks through’ the partnership to tax the partnership income in the hands of the partners themselves.

Even though the partnership is transparent, the first step in working out the partners’ tax position is to calculate the profits from a trade or profession as if the partnership were a UK resident individual, using the normal rules, see the Trading profits of a partnership guidance note.

The treatment of payments to partners, such as rent and removal expenses, has special treatment; so too do payments of interest on partnership capital. See the Trading profits of a partnership guidance note.

Once the overall tax-adjusted trading profit or loss is established, it is divided up between the partners in their agreed profit-sharing ratios, see the Allocation of partnership income guidance note.

Each individual’s share is taxed or relieved as if it derived from a trade or profession carried on by him alone. There is thus a ‘notional trade’ carried on by each partner separately.

For mixed partnerships (ie partnerships made up of a mixture of both individual and non-individual members), where a corporate partner receives an excessive profit share or an individual receives an excessive share of losses, anti-avoidance legislation requires that the amounts are reallocated. See the Partnership anti-avoidance provisions guidance note.

Overseas partnerships

In some jurisdictions, partnerships are taxed in the same way as in the UK (transparent); in others, they are treated more lik

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