Incorporating an LLP: direct tax considerations

In an article for Tax Journal, Partner Joe Robinson and Associate Harvey Innocent explain how LLP members may defer gains when transferring their interests to a company, while highlighting additional complications for corporate members and goodwill.

LLPs are facing an increasingly complex and uncertain tax landscape. Many firms may therefore consider transitioning to corporate structures, often achieved through transferring LLP interests to a company in return for shares. However, as LLPs are generally tax-transparent, this process may crystallise chargeable gains for members. This article discusses the availability of tax reliefs on incorporation transactions: incorporation relief enables individual LLP members to defer those tax liabilities by rolling latent gains into the consideration shares and, while incorporations are more complicated for mixed member LLPs, intra-group relief and reconstruction relief both facilitate tax neutral transitions for corporate members if structured correctly.

Read the full article.