PM131530 - LLP: partners' basis periods, losses and overlap relief

Where a partnership carries on a trade or profession each partner liable to Income Tax is deemed to carry on a personal trade or profession. The basis period rules are applied to that deemed trade or profession and any overlap profit is personal to each partner.

If, on conversion, a LLP succeeds to the business previously carried on by an old partnership then a partner’s personal trade or profession is regarded as continuing.

In these circumstances and provided that the conditions for the relief are otherwise met:

• a member of an old partnership may carry forward the balance of any loss relief to which they may be entitled against their share of future profits made by the LLP, and
• a member of a LLP may carry back and set off any terminal loss relief to which they may be entitled against their share of profit which accrued to them whilst a member of the old partnership.

Further they will be entitled to a deduction for the overlap relief which accrued to them whilst a member of the old partnership at the time they finally retire from the LLP (or perhaps earlier if the LLP changes its accounting date).

These rules also apply to the notional trade, business or profession of indirect partners. The indirect partner is therefore carrying on a separate notional trade or profession in respect of each partnership they are a direct or indirect member of. For more information see PM163080 and PM163155