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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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?
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.