LLM6100 - Conversion: Scottish limited partnerships: commencement and cessation
Before being admitted as members of Lloyd’s, the form
of the partnership agreement has to be approved by Lloyd’s.
In particular, the partnerships are required to adopt 31 December
as their accounting date, and other than when the partnership is
first set up, partners may only join on 1 January and leave on 31
December. This ensures that the rules about commencements and
cessations and so forth are relatively straightforward, permitting
the disapplication of most of the cessation provisions in the FA93
and FA94 rules and those in regulations 9 – 17 SI1995/351.
The commencement and cessation provisions in Chapter 15 of
Part 2 of ITTOIA 2005 (formerly ICTA88/S60(2) to (5) and S61 to
63A) are specifically disapplied to Lloyd’s SLPs (regulation
6(1)(a) SI1997/2681).
Commencement of the partnership
An SLP typically sets itself up shortly before the beginning of
the underwriting year for which it will first write business. Its
first accounts run to the end of that underwriting year, and will
therefore be for a period exceeding one year (regulation
6(2)(b)(ii) SI1997/2681). For example, if the partnership began on
1 July 2004 and first wrote business for the 2005 account, the
first accounts will be for the period from 1 July 2004 to 31
December 2005. That entire period forms the basis of assessment for
the tax year in which it ends, so that the profit or loss for that
period will be taken into account for tax purposes in the
2005–06 tax year for individual partners.
The tax return for that first period asks for details of some
types of income, such as taxed interest, for the tax year. This
means that income arising before the start of the tax year must be
returned by the individual partners on their own returns. For
example, in the circumstances above, any income of this type
arising between 1 July 2004 and 5 April 2005 will not be included
in the partnership return and must be notified to the individual
partners so that they can include it in their own self assessments
for the year 2004–2005. This only applies to the first year
of trade.
Partners joining and leaving SLP
Once the SLP is established partners can only join or leave as at 31 December in any year. Unless the change is by way of assignation, the Scots law equivalent of assignment, a joining partner starts with a clean sheet, and a leaving partner (while no longer continuing to share in the profits or losses of new business) remains a partner until all of the syndicate years of account the partnership participated on since that partner joined have been closed. For instance, a partner decides he no longer wishes to share in the profits or losses of business written on or after 1 January 2006. The final year of account in which he has an interest is 2005, and that account closes 31 December 2007, with results declared in June 2008. This leaving partner remains a partner until 31 December 2008.
Assignation of partnership interest
Partners can assign their interest in an SLP to a new partner, but again this can only take place as at 31 December in any year. Assignation in this context means that the succeeding partner becomes a partner in the place of the departing partner and will receive (and be taxed on) profits allocated to him in respect of subsequent accounting periods of the partnership (whether or not the business concerned was written before or after the assignation) and be liable for losses in the same way. These benefits and risks will be reflected in the price paid on assignation, which is itself chargeable to capital gains tax.
Death of partner
When partners die, their involvement in future business comes to an end, but their personal representatives are regarded as conducting the trade until matters are wound up. Lloyd’s require the partnership agreement to allow a limited period (generally 60 days) during which it is possible for the executors to assign the partnership interest, but failing that the estate will have to wait for all of the relevant syndicates to close (regulation 9 SI1997/2681).
