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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Business Income Manual: Computing the amount to assess: Mixed Membership Partnerships: Excess profit allocation: Interaction with AIFM deferral arrangements

ITTOIA/S850C (6)

The mixed membership partnership legislation is applied before the profit deferral arrangements legislation applicable to AIFM firms.

This means that if the individual member is re-allocated profit from a corporate member, they can elect for the “restricted” profit share to be treated as profits of the AIFM partnership, in exactly the same way as if the profit had been allocated to the individual in the first place.

The AIFM partnership itself is not treated as a non-individual partner, so the excess profit allocation rules do not apply to the allocation by the individual to the AIFM partnership.  


*Example 1 *

This example looks at the basic position where deferred profit is allocated to a corporate member.

*X, a partner in an AIFM firm, is due a profit share of £100,000 which is to be deferred under the AIFM rules. *

*The firm allocates this deferred profit to a corporate member. *

The excess profit allocation rules apply. Condition X is satisfied and this £100,000 is re-allocated to X. Subject to the conditions being met, X will be able to use the AIFM mechanism described in Chapter 4 in respect of the profits reallocated to him.


*Example 2 *

There is no re-allocation of profits where the profits are treated as allocated to the firm itself under the AIFM Rules.

*The firm has made an election so that “relevant restricted profits” can be allocated by individual members to the firm. *

*The individual allocates their deferred profits of £100,000, allocated to them under the profit allocation rules, to the firm. As the firm is treated as an individual, there is no re-allocation from the firm back to the individual under the mixed membership partnership rules. *

The firm pays tax on that amount in accordance with the AIFM rules.