LLM6150 - Conversion: Limited Liability Partnerships
Background
Limited Liability Partnerships were introduced by the Limited
Liability Partnerships Act 2000. BIM72110 contains more details on
LLPs (
LLM10000). Tax rules on LLPs are in
ICTA88/118ZA onwards, and in ITTOIA05/S863.
Lloyd’s admitted LLPs as members with effect from 7
December 2005. The first LLP members of Lloyd’s participated
in the 2007 underwriting year.
Tax rules for Lloyd’s LLPs
SI2006/111 amended the 1997 Regulations on SLPs (SI1997/2681
– see
LLM6060) so that they apply to
‘Lloyd’s partnerships’, with effect from 14
February 2006. A Lloyd’s partnership is a member of
Lloyd’s that is either a SLP or a LLP formed under the
Limited Liability Partnerships Act 2000 or the Limited Liability
Partnerships (Northern Ireland) Act 2002. The 1997 Regulations were
renamed the Lloyd’s Underwriters (Partnerships) Tax
Regulations.
The effect of the 2006 changes is that the Regulations now
apply to Lloyd’s LLPs in the same way that they apply to
Lloyd’s SLPs, with the exception of the treatment of
‘earned income’. This in turn means that the normal tax
rules that apply to partnerships, subject to the adaptations set
out in the Regulations, apply to all Lloyd’s partnerships.
The conversion relief rules in FA93/SCH20A (
LLM6160) were also amended (in
SI2006/112) so that they apply to LLPs as well as to SLPs, also
with effect from 14 February 2006.
‘Earned income’
Regulation 8 of SI1995/351 disapplied FA93/S180 in relation to
Lloyd’s SLPs. This means that profits of members of
Lloyd’s SLPs are not relevant (UK) earnings, and therefore
not subject to NIC or eligible for relief for pension
contributions. This is because the limited partners in SLPs are not
permitted to have a role in the management of the SLP.
LLP partners are allowed to have such a role. Regulation 8
does not therefore disapply FA93/S180 in relation to the profits of
LLP partners, which are treated as ‘earned income’.
Loss relief
The rules which limit loss relief of a limited partnership
member to the amount of the member’s capital contribution (
LLM6090) apply similarly to LLP members.
There are further restrictions to limit the amount of loss relief
for ‘non-active’ members of LLPs. However, these
further restrictions do not apply to the underwriting business of a
Lloyd’s Name.
The limit on the amount of sideways relief (ITA07/S64 and
ITA07/S72) and capital gains relief (ITA07/S71) introduced by
FA07/SCH4/PARA1 as ITA07/S103C does not apply to partners in a
partnership which is a member of Lloyd’s – ITA07/S103C
(8).
Tax relief for interest on borrowings
ICTA88/S362 (2)(a) denies tax relief to limited partners in SLPs and members of investment LLPs on interest paid on amounts borrowed to buy into the partnership. Limited partners in Lloyd’s SLPs cannot therefore get tax relief for such interest, but this restriction does not apply to members of Lloyd’s LLPs, which are trading, not investment, LLPs.
