MP leads call to end Scottish Limited Partnerships

SNP MP Roger Mullin is leading calls to scrap Scottish Limited Partnerships (SLPs) over fears it facilitates ‘aggressive’ tax avoidance and financial crime

The Scottish government added its voice to Mullin’s, noting it is ‘essential that Scotland is not a safe haven for criminal organisations in any way and that all necessary steps are taken to stop Scottish Limited Partnerships from being a vehicle for those intent on pursuing criminal activity’.

In an article for Herald Scotland, Mullin called for a ‘full review’ of the way SLPs operate and confirmed he will put forward an amendment to the upcoming Finance Bill to address the issue.

Legal personality

Unlike other limited partnerships, SLPs possesses a separate legal personality, allowing them to own assets, enter into contracts, sue or be sued, own property, borrow money and issue certain kinds of security. Typically, limited partnerships are not treated as separate legal personalities and as such are unable to exercise ownership or agency.

Much like a limited partnership, SLPs have two types of partner: general partners who are liable for the debts and obligations of the limited partnership and limited partners whose liability is limited to the extent of their capital contributions. Under SLP structures, there is a legal requirement that limited partners may not participate in management of the partnership. In conventional partnerships, all partners are jointly and severally liable for all the partnership debts.

For many, this makes SLPs ideal vehicles for multi-party investor structures where management and control rests with the general partner.

For tax purposes, SLPs are taxed as though they do not have a separate legal personality. No tax is payable by the SLP itself. Instead, the tax authorities look through the partnership structure and partners are taxed on their share of partnership income and gains arrived at in line with their profit-sharing ratios. Provided the partnership is not trading in the UK, however, no UK tax will be payable by non-UK resident partners.

SLPs were introduced to the statute book by the UK government under Liberal Chancellor Herbert Asquith in Limited Partnerships Act 1907. Despite their name, the regulation, operation and dissolution of SLPs remain with Westminster.

Legal purposes

Often, SLPs are used for legitimate purposes, such as fund management. However, over the four years to 2015, approximately 8,000 new SLPs were registered with Companies House, and Mullin harbours concerns over the ‘potential for tax impropriety’.

The Scottish government confirmed its finance minister Derek Mackay had written to the UK government on the matter.

In its accompanying statement, the Scottish government said it does ‘recognise, however, the benefits offered by Scottish Limited Partnerships to legitimate companies and the need to ensure that what corrective action is taken does not lessen their attractiveness for legitimate aims’.

The Limited Partnerships Act 1907 can be read here.

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