CTM61515 - Close companies: loans to participators: partnerships
Loans to a Scottish partnership
There are some doubts as to whether ICTA88/S419 applies to loans where a Scottish partnership is involved. A Scottish partnership has a separate legal identity from the persons carrying on the partnership. Thus a loan to a Scottish partnership is neither:
- a loan to an individual, because the partnership is not an ‘individual’, nor
- a loan to individuals, because the loan is to the partnership and not to the individual partners jointly.
If there is a genuine partnership and you are satisfied with the bona fides of the arrangements, you should not argue that such loans come within ICTA88/S419 (1).
You may want to consider ICTA88/419 (5) if payments to the individual partners can be linked to a loan from the company (see CTM61670).
Loans to a partnership of which company is a member
There are also doubts about the application of ICTA88/S419 to loans to a partnership whose members include the company itself. The loan cannot reasonably be viewed as a loan to the other partners.
You should not contend that such loans are within the charge to ICTA88/S419 if there is a genuine partnership and you are satisfied with the bona fides of the arrangements. The possibility of invoking ICTA88/S419 (5) should not be overlooked.
Limited liability partnerships
There is no difference in treatment between Scottish and English limited liability partnerships (LLPs). ICTA88/S118ZA introduced legislation in respect of LLPs, a new type of corporate entity which came into existence with effect from 6 April 2001, (see CTM36550 for further background information on LLPs).
The legislation makes it clear that for tax purposes the LLPs (both English and Scottish) are transparent in much the same way as an English partnership has always been.
Therefore loans etc by close companies to both English and Scottish LLPs are caught under ICTA88/S419 for the same reasoning as a loan to an English partnership. Provided that one of the members (partners) of the LLP is an individual who is a participator (either in his own right or via the partnership) in the close company then the loans etc will be caught.
Other partnerships
Any other case involving a loan to a partnership of which not all the members are individuals, should be submitted with the file to CTIAA (Technical).
