Trust as an LLP Member

[ARogers]

I have a client with a family trust that is looking to invest into the client's business.

Usually this wouldn't be a concern as they would simply buy shares at market value and receive an appropriate dividend to pay out to the beneficiaries.

However, this client's trading entity is an LLP and a trust buying into an LLP is not something I've come across before. Are there any complications in a trust acquiring an interest in the LLP? Obviously it will entitled to a profit share and as a non-active partner it will be subject to the restrictions on sideways loss relief (which isn't relevant here anyway).

Are there any issues I might be overlooking or can this go ahead relatively simply with a business valuation in line with usual company principals?

Thanks for any help.

[section 44]

Presumably the trustee(s) would be the member(s) of the LLP.

What's the LLP's business and does the LLP hold any land (hence would the trustee's acquisition of an interest potentially be subject to SDLT)?

As the LLP would generally be treated as transparent for direct tax purposes the trustees would be liable to tax on their share of the profits, irrespective of whether or not the trustees have actually received any profits from the LLP.

[ARogers]

The trustees are actually the currrent business owners (husband and wife) so I they would be members both in their personal name and in their role as trustees.

The business is a consultancy business and holds no properties, so there is no SDLT issues.

I appreciate that the LLP is transparent, the trust would expect to distribute the vast majority of the income received to the beneficiaries (obviously allowing for the tax charge).

[Incredulum]

I appreciate that the LLP is transparent, the trust would expect to distribute the vast majority of the income received to the beneficiaries (obviously allowing for the tax charge).

You are missing the point. A transparent vehicle does not have a tax charge.

Any sum distributed is irrelevant for the tax; the trust will owe tax even if there is no distribution.

[ARogers]

You are missing the point. A transparent vehicle does not have a tax charge.

Any sum distributed is irrelevant for the tax; the trust will owe tax even if there is no distribution.

I'm not sure where I am missing the point.

The LLP will obviously not suffer tax being transparent as the profit shares will be assessed on the members in the appropriate proportions.

The trust itself will be taxed on it's profit share from the business.

The trust distributes to the beneficiaries who will recover a tax credit equivalent to the tax paid by the trust. For info, the distributions will be within the beneficiaries personal allowances and it is not a parental settlement.

If the trust distributes all of the net income and the beneficiaries recover the tax paid, isn't the tax charge largely irrelevant? Therefore the sum distributed is extremely relevant to the situation?

Please let me know if I am misunderstanding the position.

Thanks

[section 44]

what about if the LLP doesn't distribute the profit (say if it is on deemed, as opposed to actual, profit)?

[Incredulum]

I missed the point, not you, sorry.

[ARogers]

Yes in the event that there were deemed profits which were not physically distributed to the trust then there would be a tax charge without a corresponding reclaim. However, it is not anticipated that this would be the case, although it is of course worth noting.

Thanks for your help guys - it's good to know I was on the right track and not about to hit a brick wall!