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
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
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.
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