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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Business Income Manual: Computing the amount to assess: Mixed Membership Partnerships: contents

The Mixed Membership Partnership legislation applies to partnerships or UK LLPs whose membership includes both individuals and members who are not individuals.

In this guidance, the term partnership includes an UK LLP treated as transparent and the term partner includes a member of a transparent LLP.

The Mixed Member Partnership legislation applies to prevent profits and losses being allocated in a way that reduces the tax liabilities of individual partners.

Background

The Mixed Membership Partnership legislation can be broken down into two elements:

  • The excess profit allocation rules prevent profits being diverted by an individual member to a non-individual member in order to reduce tax on the individual’s profit share.
  • The excess loss allocation rules apply to prevent losses being claimed by an individual member instead of a non-individual.

 

The excess profit allocation rules apply where an individual, or individuals, divert all or part of their profit share to a non-individual member or members, usually a company or companies, in order to reduce tax on their profit share.

The excess profit allocation rules over-ride the profit sharing arrangements agreed by the members so that individual members are taxed on the diverted profits.

The excess profit allocation rules do not apply to mixed membership partnerships in which the individual and non-individual partners are genuinely unconnected and which do not concern profit deferral arrangements.

For guidance on the excess profit allocation rules, see BIM82710.

As reallocated profits are taxed on the relevant individual member(s), but the profits remain in the hands of the non-individual member, the legislation allows for the profits to pass from the non-individual member to the individual without further tax being due. For guidance on this, see BIM82815.

The excess loss allocation rules apply where arrangements are entered into with a view to an individual member, or members, being allocated losses of the partnership, instead of a non-individual, in order for them to be able to claim loss relief.

The rules ensure that relief for the losses will be restricted in such cases. For guidance on the excess loss allocation rules, see BIM82950.

  1. BIM82710
    Overview
  2. BIM82715
    Excess profit allocation: contents
  3. BIM82720
    Excess profit allocation: Who is a non-individual partner?
  4. BIM82725
    Excess profit allocation: When do the rules apply?
  5. BIM82730
    Excess profit allocation: Condition X
  6. BIM82740
    Excess profit allocation: Condition Y
  7. BIM82745
    Excess profit allocation: Appropriate notional profit
  8. BIM82750
    Excess profit allocation: The appropriate notional return on capital
  9. BIM82760
    Excess profit allocation: The appropriate notional consideration for services
  10. BIM82765
    Excess profit allocation: Appropriate notional consideration for services: restriction
  11. BIM82770
    Excess profit allocation: The power to enjoy
  12. BIM82775
    Condition Y: Power to enjoy: Connected parties
  13. BIM82780
    Condition Y: Power to enjoy: Arrangements to secure corporation tax rather than income tax treatment
  14. BIM82785
    Condition Y: Power to enjoy: Enjoyment conditions
  15. BIM82790
    Condition Y: Is the profit share influenced by the power to enjoy?
  16. BIM82800
    Excess profit allocation: Relevant tax amount
  17. BIM82805
    Reallocations: individuals
  18. BIM82810
    Reallocations: non-individuals
  19. BIM82815
    Payments by the non-individual out of its reallocated profit share
  20. BIM82825
    Interaction with AIFM deferral arrangements
  21. BIM82830
    Excess profit allocation: Anti-avoidance
  22. BIM82850
    Excess profit allocation: Particular Issues
  23. BIM82855
    Excess profit allocation: Businesses transferred to the partnership
  24. BIM82860
    Businesses transferred to the partnership: Examples
  25. BIM82870
    Excess profit allocation: Takeover of the LLP
  26. BIM82880
    Excess profit allocation: Private equity investment
  27. BIM82890
    Excess profit allocation: Share issues
  28. BIM82900
    Excess profit allocation: Pseudo share schemes/membership benefit schemes
  29. BIM82910
    Excess profit allocation: International structures
  30. BIM82945
    Excess profit allocation: Commencement
  31. BIM82950
    Excess loss allocation
  32. BIM82955
    Excess loss allocation: When do the restrictions apply?
  33. BIM82960
    Excess loss allocation: the effect of the restrictions?
  34. BIM82965
    Excess loss allocation: Transitional Provisions