General Partnership vs LLP
A general partnership (Partnership Act 1890) has no separate legal personality and partners have unlimited joint and several liability. An LLP (LLP Act 2000) has separate legal personality and limited liability for members. Both are transparent for income tax and CGT — partners/members are taxed on their share of profits at their marginal income tax rate.
Income Tax and Section 24 — Partnerships vs Companies
Section 24 (ITTOIA 2005 s.272A) applies equally to partnerships — partners receive a basic rate tax credit (20%) on mortgage interest, not a full deduction. Income splitting is possible by allocating profits to a lower-rate taxpayer partner. National Insurance does not apply to rental income from a property investment partnership. Limited companies are exempt from Section 24 and can deduct mortgage interest in full.
HMRC Settlements Legislation — Limits on Income Splitting
ITTOIA 2005 ss.619–648 can tax income on the settlor rather than the recipient where income splitting lacks genuine commercial reality. Married couples jointly owning residential property must use Form 17 to declare unequal beneficial ownership — the income split must match the beneficial ownership split. Genuine commercial partnerships (where profit allocation reflects capital contribution, work, and risk) are not challenged.
SDLT on Transfers to and from a Property Partnership — FA 2003 Schedule 15
Where a partner transfers property to a partnership and retains an economic interest equal to their pre-transfer interest (via their partnership share), no SDLT is chargeable (FA 2003 Sch.15 para 10). Connected person anti-avoidance rules apply where new partners take a share of the partnership property without consideration. Transfers from a partnership to a company trigger full SDLT on market value — TCGA 1992 s.162 Incorporation Relief shelters CGT but not SDLT.