Equity partner taxes

Hey all,

I was made equity partner in an LLP last year, and I'm trying to figure out my tax situation. I understand there is a concept of an overlap tax that is applied when you're self-employed, and that according to this rule I'll have to pay 1.5x tax for the first few years? And that I can’t claim tax relief until I exit the partnership. My tax accountants seem to think this is the case, but I'm looking for a second opinion...

(Some other key facts: I'm married to a British citizen, we live in the UK together, I have no secondary income, we have a joint mortgage.)

Thanks!

My tax accountants seem to think this is the case, but I'm looking for a second opinion...

Thanks!

I suspect that you are going to find yourself in a very complex area and you will no doubt need professional advice. It's a little worrying when your tax accountants 'seem to think' - you definitely need an expert opinion and from an accountant who understands both the UK and US tax systems with professional indemnity insurance - don't accept ambiguous advice - one who holds licences (and the experience) to practice on both sides of the pond.

You don't mention the %age of equity that you hold - this may have an impact also. If the LLP is deemed a CFC (Controlled Foreign Corporation) then GILTI (global intangible low-taxed income) can apply - it all depends on the % you hold and whether there are other USC partners.

Overlap tax normally refers to a period where a partnerships' trading year does not align with the standard tax year. As you're potentially dealing with three tax years (LLP, UK (HMRC) & US (IRS)) it can get very complex - hence the recommendation of getting quality professional advice. A professional advisor should also be able to help you with any tax planning aspects that may eliminate horrible surprises (either from HMRC or the IRS) that may occur when you eventually decide to exit the partnership.

You may find the following useful:

https://www.irs.gov/forms-pubs/about-form-8865

Let us know how you get on.

Thank you Smitch! Yes, it does seem to be a complex, multi-layered situation I'm in.

The issue with my current accountants is that they're somewhat inaccessible. They're not particularly responsive and my queries are mostly fielded by junior staffers. So it's hard to know if I'm getting the right expertise. Would you (or anyone else) happen to have any recommendations for quality advisors/accountants based in London that could handle this type of situation...?

Thanks again!

Speak to Monument Tax. Haven’t personally used them but know people who have and they’ve received good advice and service without silly prices.

Monument are based in Hove and so that may be too far for you as you said you were looking for London based - although to be fair, regional practices tend to be a little cheaper than London practices.

Personally I used Damian Talbot at Warrener Stewart back in 2017 when I embarked on the Streamlined compliance process - successful and very thorough as well as being reasonably priced. You can find more details here:

https://www.warrenerstewart.com/our-people/directors/damian-talbot-fca-cta-ea

An LLP is a body corporate. For UK tax purposes it is treated as a partnership - but it is not and never has been a partnership. An LLP is a foreign corporation.  This can require filing of Form 5471, Form 926, Form 8621, Form 8938 or indeed several of these forms. The LLP will naturally want to know what and how you will report to the IRS. Your first port of call is the finance partner and the LLPs finance team.

Thank you for all the information everyone!

I will try out a few things and will keep you updated.