Jersey Limited Partnership Law provides a modern and comprehensive framework for the establishment and administration of a Family Limited Partnership (FLP) which can be formed to hold a family's business or investments.

In the UK, since March 2006 contributions to a trust carry a 20% inheritance tax (IHT) charge on the added value to the extent it exceeds the settlor's unused nil rate band (currently) £320,000). There are also ten yearly charges on the value held in the trust over and above the nil rate band on every ten year anniversary of its creation, up to the maximum value of 6%. These charges may not apply in the case of someone who is not domiciled in the UK providing they are contributing assets situated outside the UK and in those situations an offshore trust may still be a useful holding structure.

In other cases, an FLP may offer an alternative investment structure which allows wealth to be passed down through generations whilst still giving the older family members the ability to influence the administration of that wealth.

In addition to the UK tax advantages FLPs, when properly structured, can be flexible and will provide limited liability.

They enable donors to keep 'control' of assets and withdrawals can be controlled where an appropriately drafted partnership agreement is utilised. Contract law will apply to FLPs and in this regard they are a different animal to trusts and provide an alternative to Foundations. The deed can be drafted in wide terms so as to allow the General Partner discretion as to whether to distribute profits or retain them for the benefit of the business. Restrictions can be put in place to prevent transfers of partnership shares to people outside the family. Similarly, capital withdrawals by a limited partner can restricted until a fixed date or until a limited partner reaches a prescribed age, or without the unanimous consent of all the partners. The senior family members donating assets into the FLP can retain some element of control over the management of the FLP, through ownership of the General Partner's shares. In order to ensure offshore management and control, all meetings and decisions should take place in Jersey. On the donor's death, consideration should be given to Jersey probate issues and therefore plans should be in place to transfer the shares to a Purpose Trust established for the benefit of future generations.

It should also be noted that, unlike a UK resident FLP, a Jersey FLP would not be treated as a collective investment scheme and therefore it would not have to have a discretionary manager and operator authorised under the Financial Services and Market Act 2000 which offers significant cost savings.

There is no requirement to disclose the names of Limited Partners and there will be no requirement to file copies of the partnership agreement with the Jersey authorities. In comparison, an English law limited partnership is subject to public disclosure requirements at Companies House and families may not want to disclose the FLP's members or activities.

An FLP can only be used for the management of a business and not the passive holding of assets. It is, therefore, not suitable to hold a family home or other assets, which are to be used to benefit family members. Income cannot be accumulated as it can in a trust and can only be invested in the business assuming that the General Partner has the power to do so; otherwise all income should be distributed to the members according to the partnership agreement. There is some dispute as to whether minors can be partners in an FLP and care should be taken as to how their entitlement is to be structured.

Establishing, managing and administering an FLP, including a corporate General Partner, is likely to be more costly than a trust but provides a neat and long established mechanism for the transfer of wealth in a relatively tax efficient way, whilst reserving a certain level of control at first generation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.