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HMRC internal manual

Lloyd's Manual

Conversion: Scottish limited partnerships: introduction

The first Scottish limited partnerships (SLPs) to be admitted as members of Lloyd’s wrote business for the 1997 underwriting year. Each partnership consists of a general partner bearing unlimited liability and a number of limited partners and is set up under the law of Scotland. Under traditional partnership law there cannot normally be more than 20 partners in all. The tax treatment of Lloyd’s SLPs follows the general principles of partnership taxation but has also to take account of the specific Lloyd’s rules. The Lloyd’s Underwriters (Partnerships)(Tax) Regulations 1997 (SI1997/2681) provides the extra rules needed. See LLM6150 for the amendments made to these regulations as a consequence of the introduction of Limited Liability Partnerships to Lloyd’s.

BIM72100 onwards (see LLM10000) gives the normal tax rules for limited partnerships formed under the Limited Partnerships Act 1907.

Partnership is member of Lloyd’s, individual partners are not

The Lloyd’s Act of 1982 requires that members of Lloyd’s underwrite only on their own account. Partnerships governed by English law cannot meet this condition because the partners are jointly and severally liable for the debts of the firm. Partnerships governed by Scottish law have legal personality, which enables Lloyd’s to admit them as members. The SLP itself is the member of Lloyd’s; neither the general partner nor any of the limited partners are (although the limited partners in practice may be, or may have been, individual Names in their own right).

Liability of the partners and of the partnership itself

Limited partners are normally individuals, but in principle can include incorporated companies. A limited partner is not liable for the debts of the partnership beyond the amount of his capital contribution to the partnership, and is not allowed to take part in the management of the partnership business.

A limited partnership must also have one or more general partners who are liable for all the partnership’s debts on an unlimited basis and who manage the partnership business. Lloyd’s SLPs usually have a single general partner which is a limited company. Often the same company acts as general partner for a number of different Lloyd’s SLPs.

The fact that there is a general partner taking unlimited liability ensures that the partnership itself bears unlimited liability, but without exposing the limited partners to that risk. Since the general partner is a limited company, its participators’ liability is in practice also limited.

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Calendar year accounts

Lloyd’s require all SLPs to make up their accounts to 31 December.

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SA returns

The SLP is required to make a return of the partnership profits on the full partnership tax return. The partnership SA return is issued and dealt with by High Net Worth Unit (Shipley), which also deals with limited partners who are individuals and who are also members of Lloyd’s in their own right. LBS (Financial Sector) deals with the accounts of the general partners, and with any corporate limited partners.

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Scottish Variable Rate

Scottish Variable Rate can be levied by a Scottish Parliament from ‘Scottish’ taxpayers. SVR applies to individuals only, so SLPs as such will not be liable to SVR. Any of the partners who are individuals and who are ‘Scottish’ taxpayers will however be liable to SVR.

The rules determining who is a ‘Scottish’ taxpayer for the purposes of SVR are

  • resident in UK and has only or main residence in Scotland, or
  • spends at least half their time in the UK in Scotland, or
  • is a Scottish MP or MEP, or an SMP.

Someone whose main home, for most of the year, is in Scotland will be liable to SVR regardless of where they work in the UK, as will someone who lives elsewhere in the UK but spends at least 50% of their time in Scotland.