IHTM25094 - What is a partnership: Limited liability partnerships

The Limited Liability Partnerships Act 2000 came into force on 6 April 2001. Its main purpose and effect was to introduce a new form of legal entity known as a limited liability partnership (LLP). The pressure for the change was largely to resolve problems arising out of the nature of traditional partnerships for larger professional practices, but the use of LLPs is not restricted to them.

These practices, usually accountancy or law firms, can have partners world-wide who may be concerned about the fact that they have been subject to joint personal liability on matters over which they had little control.

The LLP Act 2000 has made a small amendment to the IHT legislation by directing (under s.11 LLP Act 2000) that a new paragraph (IHTA84/S267A) should be inserted after IHTA84/S267. The effect of this paragraph is that we look through LLPs so that they will be treated in the same way as traditional partnerships. The result of this is that:

• Where a traditional partnership incorporates itself as a LLP, a partner’s period of ownership for the purposes of qualifying for business (or agricultural) relief will not be regarded as being interrupted.
• The normal reliefs and exemptions available to partners in a traditional partnership will also be available to members of a LLP. In particular, IHTA84/S10 (which provides an exemption for dispositions not intended to confer gratuitous benefit) will apply.

A further change is that an interest in a LLP is deemed to be an interest in each and every asset of the partnership, while an interest in a traditional partnership is a 'chose in action', valued by reference to the net underlying assets of the business. This may require you to consider issues of situs of property. In cases of doubt refer to Technical Group (TG) for advice.

However, in considering if an LLP is an investment business ( IHTM25261), you should look at the nature of the business underpinned by those assets, rather than the nature of the assets themselves, to see whether IHTA84/S105 (3) is in point.

Thus, in the case of an LLP investing in unquoted shares in trading companies, it would be inappropriate to allow relief on the basis that the underlying assets constitute business property: the true position is that the nature of the business conducted by the LLP falls within IHTA84/S105 (3) so that relief is not available.