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HMRC internal manual

Business Income Manual

Partnerships: Limited Liability Partnership (LLP): partners interest relief

S383, S398, S399 Income Tax Act 2007

LLP carries on a trade or profession

Where a LLP carries on a trade or profession the members of the LLP who are individuals are entitled to claim interest relief on the loans they obtain in order to invest in the LLP provided that they otherwise meet the conditions of the relief.

Where a partnership governed by the Partnership Act 1890 - a general partnership - converts to a LLP, it continues to be taxed as a partnership following the conversion. There is no event causing statutory relief to be withdrawn, and existing relief continues undisturbed provided the partner/member continues to meet the qualifying conditions.

For other changes Extra-statutory Concession ESCA43 might apply. It preserves existing interest relief where, following certain kinds of partnership reconstruction, it would be withdrawn under strict law. Because a LLP is taxed as a partnership, all references in ESCA43 to a ‘partnership’ can be read as including reference to a LLP (other than an investment LLP). This means that a member’s relief would not be discontinued where, say, the LLP underwent a merger as envisaged in paragraph 2(c) of the concession.

LLP carries on an investment business

If the LLP carries on an ‘investment business’, that is a business which consists wholly or mainly in the making of investments and the principal part of whose income is derived there-from, the members are not entitled to interest relief. For this purpose whether a LLP is treated as carrying on an investment business is determined for each period of account. You need to look at a representative period to form a view of whether the principal part of income is derived from investment business but that view then applies for the complete period of account.