View the article online at http://citywire.co.uk/wealth-manager/article/a732895
Will new tax rules spark trend for wealth LLPs to incorporate?
by Danielle Levy on Feb 11, 2014 at 11:02
‘I am very concerned about this legislation. I think it is anti-LLPs, anti-industry and I think it will cost the government significant revenues as it will force LLPs to consider moving away from the UK,’ said Magnus Spence, CEO of Dalton Strategic Partnership and chairman of NCI.
‘HMRC in general treats partnerships as exclusively avoidance vehicles. I think HMRC and the Treasury are really at risk of throwing the baby out with the bath water.’
He warns the rules do not take into account the fact that some partners in investment management businesses are not given a general share of profits but rather the profits linked to their own activities. He said in seeking to address a relatively small number of people who are abusing the system, legislators ‘run the risk of creating a monster’ in the form of a shift to incorporate or an exodus out of the UK.
So what are the advantages of incorporating? At a headline level, a shift could prove a no-brainer for some businesses, given that retained profits are taxed at 23% under corporation tax rather than 45%. However, the costs and longer-term consequences of the exercise should not be underestimated.
George Bull, national chair of the professional practices group at Baker Tilly, said several of his LLP clients are exploring whether to incorporate but he stresses there are complexities and costs.
‘Incorporating is a difficult and important thing,’ he said. ‘It produces an inflexible ownership structure and lots of businesses need the flexibility of an LLP and they would lose that.’
For LLPs that do change their contracts, ownership structure and legal documentation, the costs for a smaller organisation could amount to tens of thousands of pounds, with larger organisations paying hundreds of thousands.
‘That is why so many firms will retain the LLP status as much as they possibly can,’ Bull said.
2CG Senhouse Investments is one company that recently adopted a corporate structure. The decision was largely a result of the merger between Senhouse and 2CG, but given the choice of keeping Senhouse’s LLP structure or 2CG’s corporate status, management opted for the latter nine months ago on account of the likely changes to tax rules.
News sponsored by:
Ian McVeigh and Steve Davies, managers of Jupiter's UK Growth fund, talk about their predictions for the UK equity space. Click here to watch a series of sponsored interviews with Jupiter's fund managers on the UK equity market.