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Partnerships - Wife as sleeping partner

At a recent Lexis Nexis course, Tim Good discussed the option of introducing your wife as a sleeping partner to avoid a Class 4 National Insurance liability. The one particular part of this I was unsure about relates to the investment required by the wife.  In Tim's example, he said that his wife invested £15k to become a partner in PTP.

This has given rise to a couple of questions that (unfortunately!) I didn't think about on the day:

1.  Is the investment an integral part of being able to class the wife as a sleeping partner and, therefore, remove the charge to Class 4 NIC?

2.  Does the level of the investment have any bearing on the amount of profits that can be allocated to her?

If anyone can shed any light on these queries, it would be most appreciated.

Cheers.

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06th Sep 2011 17:09

No investment needed

The short answer to your question is that no investment is needed to become a "sleeping partner". I think this this answers both your questions.

The decision on whether a prospective partner should pay money for a share of the business is a matter for the partners alone to decide. The Partnership Act 1890 which is still the main governing law for general partnerships is silent on the matter, but it does refer to the right of partners to vary the appropraition of profits as they wish by agreement. If they don't then s24 of the Act says how profits and losses should be accounted for, essentially equally between all partners. 

The vital factor from a tax and National Insurance point of view is whether or not a partnership arrangment is geneuine. If it is then HMRC don't really have much choice but to accept the terms and consequences of the partnership agreement.

No doubt Tim pointed you in the direction of the HMRC commentry on partnership arrangments involving spouses. If he didn't then take a look at BIM72065. It's worth a read!

TC

 

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07th Sep 2011 09:31

Thanks Tony

For your very thorough reply and info re BIM72065.

I had a read at that and it is very useful.

Thanks again.

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