Transfer of Land to LLP controlled by Children

[ALC2014]

good Morning

I am a regular reader of this forum but have not posted before. However my father is currently looking at his estate planning and I would welcome some advice.

My father owns a small amount of land that would be close to/possibly slightly below the IHT threshold at current valuations. He has rented the land out for the past 10 plus years to an organisation that he has personal ties to. For health reasons he wants to tranfer all assets out of his name to his three children, however the tenant has expressed concerns about the land being split into smaller packages (through a will etc) with potentially three separate landlords. Due to the personal financial situation of one of my siblings, my father does not want to gift any assets directly to him but does want to ensure that he will benefit longterm.

What we are considering doing is incorporating an LLP with the three children as partners and my father gifting the land to the LLP. The LLP will recive the rent and my father will continue to manage the relationship with the tenant for which he will recive a small management fee from the LLP.

From a income tax perspective I know the children will then have to complete tax returns declaring thier share of the net income of the LLP, the LLP will need to complete a return and my father will declare the management fee received on his return.

From an IHT perspective I am not sure what the implications are. I know that if the transfer was made to the children individually it would have been a PET but my understanding is that this will not apply to an LLP?

Essentially we want to transfer land out of my fathers name into the childrens collective ownership (this is important). Apologies if I am over complicating things but grateful for any advice.

[section 44]

Essentially we want to transfer land out of my fathers name into the childrens collective ownership

Children cannot legally own land. I'm not sure whether there are any restrictions on children being members of an LLP (I don't think so).

I know that if the transfer was made to the children individually it would have been a PET but my understanding is that this will not apply to an LLP?

I don't see why having the LLP as the transferee would be any different to a transfer to the children.

The LLP will recive the rent and my father will continue to manage the relationship with the tenant for which he will recive a small management fee from the LLP.

The LLP might be a collective investment scheme.

[ALC2014]

Thanks for the response s44

. I should have clarified, when I say children they are all adults.

The reason for the query around PETs and LLP is that in the HMRC website it notes that a PET •"is a gift to another individual or to a specified trust," hence the reason for my query as to wheteher it is treated as a PET.

[maths]

Children including minors can be members of an LLP.

LLPs are not settlements and hence gifts thereto do not precipitate the 20% "entry" IHT charge nor is an LLP subject to the 10 yearly charges.

Discretionary trusts are often much better vehicles than LLPs for IHT planning.

An LLP is not a collective investment scheme.

[section 44]

An LLP can be a collective investment scheme. In practice, typically you would not expect to see an LLP as a CIS because of the involvement of the members but that won't always be the case and here it sounds like the children wouldn't have any active involvement with matters.

[bd6759]

Due to the personal financial situation of one of my siblings, my father does not want to gift any assets directly to him

But by making this sibling a partner, is that not what he is doing? A Trust would seem to be the better way to protect his interests.

[AvocadoK]

The reason for the query around PETs and LLP is that in the HMRC website it notes that a PET •"is a gift to another individual or to a specified trust," hence the reason for my query as to whether it is treated as a PET.

What HMRC is true as far as it goes. But then sction 267A of the Inheritance Tax Act makes some additional provisions about LLPs, including one that says:

any transfer of value made by or to a limited liability partnership shall be treated as made by or to its members in partnership (and not by or to the limited liability partnership as such).

AK