This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet
Incorporating a Buy-to-Let Property LLP into a Company
10/07/2020, by Mark McLaughlin CTA (Fellow) ATT TEP, Tax Articles - Business Tax
741 views
0
Rate:
Rating: 0/5 from 0 people

Mark McLaughlin highlights an important distinction between the incorporation of an ‘ordinary’ partnership of individuals and a limited liability partnership into a company.

Introduction

A limited liability partnership (LLP) is treated like an ‘ordinary’ partnership in many respects. However, an important distinction arises where a business incorporates into a company.

Separate Legal Entities

Like a company, an LLP is a separate legal entity. When (for example) a business carried on by an ordinary partnership of individuals is incorporated into a company, the transaction is between the individuals (as partners) and the company.

By contrast, had the partnership been an LLP, the transfer of the LLP’s business would be a transaction between the LLP (as the legal entity ‘owning’ the business) and the company.

It’s NOT Yours!

This means that if (say) the company pays for the business in cash, the disposal proceeds ‘belong’ to the LLP in legal terms, rather than its members.

Thus the individuals would not immediately receive the proceeds. Consideration would need to be given in the above example to the LLP distributing the cash (and any other assets) to its members immediately after the incorporation (subject to the LLP being able to satisfy its creditors). The LLP agreement (assuming there is one) will generally determine the basis of distribution of the LLP’s net assets to its members.

An LLP might not necessarily sell its business for cash; it might sell for shares in the company instead, or even gift the business.

When an ordinary partnership of individuals has incorporated its business into a company, the partnership will normally cease to exist. However, when an LLP’s business is incorporated into a company, the LLP will continue as a legal entity (unless it is dissolved), despite no longer carrying on the business.

Don’t Forget the Tax… 

There are various tax issues to consider when a buy-to-let property LLP incorporates its business into a company. These include land taxes (i.e. Stamp Duty Land Tax in England and Northern Ireland, Land and Buildings Transaction Tax in Scotland, and Land Transaction Tax in Wales), Income Tax for the individual LLP members and Corporation Tax for the company. For Capital Gains Tax (CGT) purposes, the disposal of the buy-to-let property business to the company will normally be treated as a disposal at market value.

Consideration of the tax implications is beyond the scope of this article. However, it should be noted that CGT ‘Incorporation Relief’ (TCGA 1992 s 162) is available to individual LLP members (as for individual members of an ordinary partnership) on the incorporation of the LLP's rental property business, if the relief conditions are satisfied. The LLP is ‘looked through’ for these purposes (TCGA 1992 s 59A(1).

Don’t Delay?

However, the LLP’s tax transparency is lost for CGT (and Income Tax) purposes when it ceases to carry on a business (unless the cessation is only temporary); but if the LLP is wound up following the permanent cessation of business the tax transparency is retained if the winding-up is unconnected with tax avoidance and is not unreasonably prolonged, provided that (among other things) a liquidator is not appointed (see TCGA 1992 s 59A(4)); ITTOIA 2005 s 863(3)).

The above article was first published in Property Tax Insider (July 2019)

About The Author

Mark McLaughlin is a Fellow of the Chartered Institute of Taxation, a Fellow of the Association of Taxation Technicians, and a member of the Society of Trust and Estate Practitioners. From January 1998 until December 2018, Mark was a consultant in his own tax practice, Mark McLaughlin Associates, which provided tax consultancy and support services to professional firms throughout the UK.

Mark  is a consultant with The TACS Partnership LLP (www.tacs.co.uk). He is also editor and a co-author of HMRC Investigations Handbook (Bloomsbury Professional).

He is a member of the Chartered Institute of Taxation’s Capital Gains Tax & Investment Income and Succession Taxes Sub-Committees.

Mark is Chief Contributor to McLaughlin’s Tax Case Review, a monthly journal published by Tax Insider.

Mark is the Editor of the Core Tax Annuals (Bloomsbury Professional), and is a co-author of the ‘Inheritance Tax’ Annuals (Bloomsbury Professional).

Mark is Editor and a co-author of ‘Tax Planning’ (Bloomsbury Professional).

He is a co-author of ‘Ray & McLaughlin’s Practical IHT Planning’ (Bloomsbury Professional) 

Mark is a Consultant Editor with Bloomsbury Professional, and co-author of ‘Incorporating and Disincorporating a Business’. This content is available as part of a number of Bloomsbury Professional's online modules.

He is Editor and co-author of ‘HMRC Investigations Handbook‘ (Bloomsbury Professional).

Mark has also written numerous articles for professional publications, including ‘Taxation’, ‘Tax Adviser’, ‘Tolley’s Practical Tax Newsletter’ and ‘Tax Journal’, which provides free information and resources on UK taxes to taxpayers and professionals, and TaxationWeb’s sister site TaxBookShop.

Mark is a Director of Tax Insider, and Editor of Tax Insider, Property Tax Insider and Business Tax Insider, which are monthly publications aimed at providing tax tips and tax saving ideas for taxpayers and professional advisers. He is also Editor of Tax Insider Professional, a monthly publication for professional practitioners.

Mark is also a tax lecturer, and has featured in online tax lectures for Tolley Seminars Online.

Mark co-founded TaxationWeb (www.taxationweb.co.uk) in 2002.

Back to Tax Articles
Comments

Please register or log in to add comments.

There are not comments added

Tony Margaritelli gives us an update following the recent government announcement about easing lockdown.