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‘Special capital’ received by individual LLP members was taxable as miscellaneous income

By Mark McLaughlin, November 2024

The rights of individual members of an LLP under a partnership deed, combined with decisions taken in their favour to reallocate special capital, resulted in a source of taxable miscellaneous income. 

Summary 

The rights of individual members of a limited liability partnership (LLP) under a partnership deed, combined with decisions taken in their favour to reallocate special capital, resulted in a source of taxable miscellaneous income. 

Background 

In October 2010, an investment management business (GSA) transferred a trading team to an LLP (HFFX). As a result of the restructuring, team members who were made members of HFFX became treated for tax purposes as self-employed partners rather than employees. Under the arrangements with GSA, their overall ‘payout’ from the profits they earned for GSA was also increased. However, a substantial proportion was deferred via a

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