LLM6080 - Conversion: Scottish limited partnerships: tax regulations
There are a number of differences between the rules for taxing partners in Lloyd鈥檚 SLPs and those for taxing individual and corporate members of Lloyd鈥檚. These reflect the different commercial structure involved and are set out in regulations 4 to 8 of SI1997/2681 (as amended).
Deposits provided by partner treated as ancillary trust funds (ATFs) of SLP
Funds provided to satisfy the Lloyd鈥檚 Deposit requirement for a Lloyd鈥檚 SLP are normally provided piecemeal by the partners involved in proportion to their respective involvement in the partnership. All funds set up in relation to a Lloyd鈥檚 SLP are treated as ATFs of the partnership (regulation 5(1)) and the investment income arising on them is accordingly chargeable as trade income. The partnership return will allocate the income on the ATFs to the appropriate partners.
This does not apply where an ATF was originally set up in relation to the underwriting business of an individual member of Lloyd鈥檚 and is then made 鈥榠nteravailable鈥� between that business and that of a Lloyd鈥檚 SLP in which the individual participates. In such circumstances the income from the ATF remains assessable as part of the individual鈥檚 own underwriting business, since the ATF was not set up in relation to a Lloyd鈥檚 SLP, as required by regulation 5(1). The ATF will only become an ATF of the SLP when the member ceases to trade completely as an individual. This will generally be following the declaration of results of the final syndicates in which the Name traded as an individual. Since the declaration of results generally occurs in May or June, the ATF income of that final year will need to be apportioned between the individual and the SLP.
Earnings basis for partnership profits allocated to individuals
Corporate members of Lloyd鈥檚 have all of the elements of their trading result brought into tax on an earnings basis, although special rules are needed to assign syndicate profits to accounting periods. When computing the Lloyd鈥檚 trading results of individual Names, this is not so: FA93/S172 (1)(c) provides a form of cash basis for the non-syndicate elements of individual members鈥� trading results. To keep the partnership return as simple as possible, the earnings basis is applied to non-syndicate related elements of the trading result when computing the trading profits as though the SLP were an individual member of Lloyd鈥檚 as well as for syndicate elements, as though it were a corporate member (regulation 6(1)(b)(ii)).
No special reserve funds (SRFs)
SLP members of Lloyd鈥檚 are not permitted to set up SRFs (regulation 7(1)). Individuals who are partners in a Lloyd鈥檚 SLP may not transfer Lloyd鈥檚 SLP profits to an SRF. Individuals who are partners in a Lloyd鈥檚 SLP and who also underwrite on their own account as individual members of Lloyd鈥檚 may only transfer profits from their own individual underwriting to an SRF. All the other rules about their SRF (such as its overall size and timing of withdrawals) are governed by reference to their underwriting as individual members of Lloyd鈥檚 alone (regulation 7(2)).
Income not 鈥榚arned income鈥� for individual partners
鈥楿nder Review鈥�