H owns land.
Land is used for trading and non trading (schedule A) purposes.
Both activities are profitable.
Proposal to bring W into the business as a revenue sharing partner. W contributes to the overall profits with her efforts.
Assets will remain outside partneship.
P'ship agreement will say that profits are to be alloctaed as partners agree from time to time.
Q - with regards to schedule A profits, would H & W be able to share these profits in an adhoc basis in the same way as is generally accepted as being ok for trade profits? Concern is that W has no interest in the Land capital.
Replies (8)
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It's a question of fact.
It's a question of fact. None of the property rents are hers unless she acquires some ownership of the property.
Agreed
I think more precisely in the suggested circumstances, the profits derived from the land itself aren't partnership profits that can be allocated between the partners, unless the land is a partnership asset. The same needn't be true in respect of a trade carried on on the land though.
Not quite the sme point, but the recent Koshal decision bears out the principles.
I'd be concerned...
... that any arrangement to ring-fence capital appreciation to the husband would be regarded as having the effect of providing the husband with beneficial ownership, notwithstanding a different legal ownership position.
@Steve
I have frequently seen examples where partnership agreements decree different equity sharing compared to the profit sharing ratios. Professional partnerships being a prime example where new partners had to serve time before being able to buy into the equity base. I cannot see how the Koshai decision would alter that being valid. Koshai was a husband and wife arrangement without any documentation in support of a differing ownership position.
@ mhtax
What blok seems to be proposing is that land owned by a husband (or I'd assumed H meant husband and W meant wife) is transferred into partnership ownership.
The wife then gets to participate in (and be taxed independently on a proportion of) the income, whilst the husband retains an effective right to all appreciation of the underlying capital.
I accept that it can be done. My concerns, in the above husband and wife scenario, would be either (1) the settlements legislation, or (2) the GAAR operating to give a different effect than that sought.
I do agree...
... that HMRC are unlikely to have a stomach for it, at least all the while that it's not particularly big beer.