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HMRC internal manual

Business Income Manual

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Business Income Manual: Computing the amount to assess: Mixed Membership Partnerships: Excess profit allocation: Condition Y: Power to enjoy: Connected parties

ITTOIAS850C (18)(a), ITA07/S993

The individual has the power to enjoy the profits of the non-individual partner if they are connected persons within the definition at ITA07/S993, other than simply being connected through being partners.

If the parties are only connected by being partners in the partnership, then they are not connected for the purposes of Condition Y.

If they are connected then the individual has the power to enjoy the profit share, and Condition Y is satisfied, see BIM82740.

Example 1

This looks at a basic example of where an individual can enjoy the profits allocated to the company.

A and A Ltd are the members of A LLP. A owns all of A Ltd.

As A controls A Ltd, A and A Ltd are connected and, as such, A has the power to enjoy any profits of A LLP which are allocated to A Ltd.

*Example 2 *

This example shows that being connected by being partners does not mean that the individual can enjoy the profits.

*A and B Ltd are the partners in the AB partnership. A has no interest in B Ltd, which is wholly owned by B, who is not connected to A. *

A and B Ltd are only connected by being fellow partners in the AB partnership. As they are only connected by being partners in the same partnership, A is not in a position to enjoy the profits under the connected person test. They are not connected and the excess profit allocation rules do not apply.

Example 3

This looks at a case involving the trustee of a settlement.

The trustee of the AAB settlement is a member of AABD LLP. AA is also a member of the LLP and is a settlor for the AAB Settlement.

As AA is a settlor of the AAB Settlement, they are connected parties. As such AA has the power to enjoy the profits allocated to the Trustee.