Looking into husband and wife partnership with one spouse as limited partner

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Client requires advice on whether to change his sole trader business to a partnership with his wife. I'm confident about advising on this and on an LLP.

However I can't find out the issues to consider regarding a partnership where one spouse is a general partner and the other is a limited partner. He already has unlimited personal liability as a sole trader. He doesn't want a limited company (or LLP by extension) as he finds the b/keeping for the sole trader hard enough.

Would the limited partner's income from the partnership be taxed in the same way as a general partner's profit share, for example? I'm stuck, can't find much on this whole area of LP's.

Replies (3)

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By Steve Kesby
22nd Jan 2014 10:13

Taxed the same

A limited partner in a 1907 Act LP is taxed the same way a a partner in an 1890 Act vanilla partnership. LPs were the vehicles of choice for film schemes. HMRC now consider that limited partners are liable to Class 2 NIC, as well.

I assume you've seen THIS and are aware that a limited partner needs to contribute capital, cannot withdraw it and cannot participate in the management of the partnership business.

Does the wife have her own wealth or will she go down with the husband in any event?

Thanks (1)
Replying to leshoward:
Red Leader
By Red Leader
22nd Jan 2014 10:43

@Steve

Thanks for the response.

The capital contribution is presumably no more onerous than a £1 share in a ltd co.

The couple's main asset is the family home, I don't think she has any independent wealth. My "angle" is that just the husband ends up with unlimited personal liability but are you implying this would be of little or no value in practice?

I followed the link to Companies House. The references to the Financial Services (sic; aka Conduct) Authority threw me a bit. Presumably that part is only relevant if the business itself is involved in pensions, investments, etc. The LP spouse would work in the business but it would be possible for just the husband to manage it.

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By Steve Kesby
22nd Jan 2014 11:10

Yes

I don't think there's any minimum requirement for the capital contribution, so it could be a nominal sum. I don't see any problem with the wife working in the business, provided she doesn't participate in its management or have power to bind the firm.

My point was though, whether the wife having unlimited liability is going to offer any practical advantage. If the business subsequently fails will the house be protected from the creditors? and will it in any event be subject to a mortgage that is funded by the business?

Incidentally, when I said a limited partner was taxed the same was as an ordinary partner, I meant while there are profits. Sideways loss relief will be restricted by reference to the capital contribution. See BIM82610.

Thanks (1)