Pre-Budget statement could ‘scupper’ LLPs.

Rules in the pre-Budget report designed to prevent the proposed new limited liability partnerships being used as a tax avoidance mechanism could prevent firms adopting the new structure altogether, according to the English ICA Tax Faculty. Tax Faculty technical committee chairman Robert Maas told Accountancy Age that the new rules were ‘horrific’ and could scupper take-up of the new structure. The tax avoidance crackdown is thought to have prompted fears that property investment companies could benefit from the tax status of LLPs. In last week’s statement the Revenue said in order to mitigate the risk of LLPs being used as a tax avoidance mechanisms, it wanted to ensure exempt bodies are taxed on income from property they receive in their capacity as members of an LLP. The Revenue said the same consequences would follow for shareholders in a company that disincorporates to form an LLP. It also said loans used to provide money to purchase an interest in an investment LLP would not qualify for tax relief. The government said it wanted views on whether LLPs would be used for businesses other than professional partnerships so that it could determine ‘whether further tax legislation is required to provide certainty of tax treatment’. LLP legislation was given Royal Assent in July and the new structure will become available in April 2001. But the Revenue said it would not set out its views on the tax treatment of members until December. Pre-Budget round-up, page 5.

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