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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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What is a partnership: Limited liability partnerships

The Limited Liability Partnerships Act 2000 came into force on 6 April 2001. Its main purpose and effect was to introduce a new form of legal entity known as a limited liability partnership (LLP). The pressure for the change was largely to resolve problems arising out of the nature of traditional partnerships for larger professional practices, but the use of LLPs is not restricted to them.

These practices, usually accountancy or law firms, can have partners world-wide who may be concerned about the fact that they have been subject to joint personal liability on matters over which they had little control.

The LLP Act 2000 has made a small amendment to the IHT legislation by directing (under s.11 LLP Act 2000) that a new paragraph (IHTA84/S267A) should be inserted after IHTA84/S267.  The effect of this paragraph is that we look through LLPs so that they will be treated in the same way as traditional partnerships.  The result of this is that:

  • Where a traditional partnership incorporates itself as a LLP, a partner’s period of ownership for the purposes of qualifying for business (or agricultural) relief will not be regarded as being interrupted.
  • The normal reliefs and exemptions available to partners in a traditional partnership will also be available to members of a LLP.  In particular, IHTA84/S10 (which provides an exemption for dispositions not intended to confer gratuitous benefit) will apply.

A further change is that an interest in a LLP is deemed to be an interest in each and every asset of the partnership, while an interest in a traditional partnership is a ‘chose in action’ (the right to recover assets through an action), valued by reference to the net underlying assets of the business.  This may require you to consider issues of situs of assets.  In cases of doubt refer to Technical for advice.

However, in considering if an LLP is an investment business (IHTM25261), you should look at the nature of the business underpinned by those assets, rather than the nature of the assets themselves, to see whether IHTA84/S105 (3) is in point.

There has been an increase in the use of LLPs in commercial structures, and sometimes there can be a different outcome for Business Relief purposes than that available from a conventional corporate structure. In the case of an LLP simply taking the place of a holding company, S.267A has the effect of preventing the LLP from benefitting from S.105(4)(b). In cases where the LLP itself also carries on a qualifying business, the business may be regarded as a hybrid, and if the shares in the subsidiary companies are used in the business (rather than being held as investments), then it is possible that the interest in the LLP may qualify for relief if it does not fail the ‘wholly or mainly’ test (IHTM25264).  The question of whether an asset is used in the business or held as an investment will be highly fact specific.


For example, a professional farming partnership might be required to hold a minimum stake within a genetics company in order to get specific semen for their bovine herds, or in a crop company to get the best seed at the best price.

If this stake is not held as an investment, but with the intention of ensuring that the trade continues and succeeds, then holding such a stake is unlikely to cause any restriction or removal of relief.