UK: Guidance removing blanket application of anti-abuse rule to capital contributions resulting in LLP member qualifying as genuine partner

Capital contributions respected if they are “genuine, enduring, and at real risk”

Share
April 17, 2025

HM Revenue and Customs (HMRC) issued guidance removing the blanket application of the targeted anti-avoidance rule (TAAR) to capital contributions made to a limited liability partnership (LLP) by an LLP member that result in such member satisfying the statutory test for being a “genuine partner” under the “salaried member” legislation, and thus not treated as an employee of the LLP with all the attendant tax obligations.

The HMRC removed the blanket application of the TAAR to such capital contributions and provided guidance regarding when capital contributions would be respected as “genuine, enduring, and at real risk.” The guidance advises taxpayers to consider the ordinary meaning of those words and to have regard to all facts surrounding the case when determining if a capital contribution meets that definition. There is further commentary on some aspects, but it seems that the over-riding question is “what is the purpose of the capital contribution?”

Background

The salaried member legislation—intended to ensure that self-employed tax status is only extended to members of an LLP that act as genuine partners—provides a list of three conditions or hallmarks indicating that LLP members are not genuine partners:

  • Condition A: Approximately 80% of the member’s profit share is “disguised salary” (i.e., remuneration that is fixed, or variable without relation to the overall profits of the LLP, or not in practice affected by those profits).
  • Condition B: The member does not have significant influence over the affairs of the LLP.
  • Condition C: The member’s capital contribution to the LLP is less than 25% of their “disguised salary.”

A member that fails any of these conditions generally would be deemed a genuine partner and would be taxed as self-employed. However, the TAAR may be applied to transactions designed to fail the conditions, which could include a capital contribution that results in a member’s capital contribution increasing above 25% of any “disguised salary” such that the member fails Condition C.

Read an April 2025 report prepared by the KPMG member firm in the UK

Thank you!

Thank you for contacting KPMG. We will respond to you as soon as possible.

Contact KPMG

Use this form to submit general inquiries to KPMG. We will respond to you as soon as possible.

By submitting, you agree that KPMG LLP may process any personal information you provide pursuant to KPMG LLP's . Privacy Statement

An error occurred. Please contact customer support.

Job seekers

Visit our careers section or search our jobs database.

Submit RFP

Use the RFP submission form to detail the services KPMG can help assist you with.

Office locations

International hotline

You can confidentially report concerns to the KPMG International hotline

Press contacts

Do you need to speak with our Press Office? Here's how to get in touch.

Headline