UK: The Family Limited Partnership

Last Updated: 9 May 2012
Article by Terence Pay


Over the last few years, the Family Limited Partnership (FLP) has become an increasingly popular vehicle for asset protection and succession planning within wealthy families. They have been particularly useful in complementing or as an alternative to the trust or foundation, which may not be suitable for tax reasons and/or due to an unsympathetic treatment of such vehicles in certain jurisdictions.

The FLP first became popular in the UK after the imposition of significant tax charges on UK domiciled settlors contributing assets to a trust. The potential 20% up-front tax charge prompted the requirement for a non-trust structure which still provided for controlled and tax-efficient succession planning. Since then, the flexible nature of the FLP has also become attractive to international families which do not necessarily have a base in the UK.

Basic Principles

A Limited Partnership is a vehicle offered by a number of jurisdictions but it is particularly well-established in the UK and Ireland. The key features of all limited partnerships are:

  • A General Partner (GP) must be appointed to manage the assets on behalf of the Limited Partners (LPs). Typically, the GP contributes a minimal amount of capital but is instead paid a fee for the management of the assets. The liability of the GP is unlimited (although in practice this can be remedied by the GP taking the form of a limited liability company).
  • One or more LPs contribute capital to the LP to be invested. As they do not take part in the management of the assets, their liability is limited to the capital contributed.
  • A limited partnership is generally considered tax transparent. That is, members are taxable on their share of profits but the partnership itself has no taxable presence.
  • There is a high degree of flexibility in the way the business and relations between the partners are governed. This is typically determined by the Partnership Agreement where there is absolute flexibility on matters such as voting, profit sharing and distributions.

Typical Structure for International Families

The FLP is most suited to families owning large multi-jurisdictional businesses where individual family members will often be resident in multiple jurisdictions for reasons of work, study, family and perhaps wider economic and political reasons. Exposure to multiple legal systems, tax rates and risk factors requires a flexible but robust asset protection/succession planning vehicle for the family assets.

A typical FLP structure might look as follows:

It will be seen from the above example that the FLP often augments existing trust structures established by family members, but this is not necessarily the case. Whilst trusts may provide an added layer of asset protection, confidentiality and may reduce tax exposure, they may not be appropriate in jurisdictions where they are poorly understood and / or considered an aggressive tax avoidance tool by local tax authorities. In such cases, it may be more effective to substitute trusts for simple offshore companies acting as partners in the FLP.

In the example structure illustrated above, the principal family shareholder with a controlling stake in the business would have already established a trust (from which he can benefit) for the purposes of asset protection. He now wishes to use a more flexible and transparent vehicle, in the form of the FLP, to give away tranches of the business to future generations whilst retaining control. To achieve this:

  • The trust becomes an initial 99% capital and profit-sharing partner in a new FLP, by contributing shares in the family business in exchange for an FLP partnership interest.
  • A second trust is settled by the controlling shareholder which, through an underlying company, becomes the general partner with a nominal 1% capital share. Through operation of the trust, the shareholder retains control over the management of the assets of the FLP. Use of a trust reduces risk of direct attribution of income and capital to the shareholder or of the possibility that the structure may be viewed as a sham.
  • Management of the assets, particularly investments, may be subcontracted to an investment advisor on an arm's-length basis.
  • Over time, tranches of the FLP interest are gifted to family members as the controlling shareholder sees fit, with any capital gains / estate taxes mitigated by the overarching offshore trust structure.
  • Controlling shareholder / General Partner retains control over income and capital distributions by virtue of the Partnership Agreement. Although a pro-rata profit and capital-sharing arrangement may be appropriate, it is not a necessity and this may be restricted by the Partnership Agreement, particularly in the early years.
  • Underlying transparent nature of the FLP lends itself well to individual tax planning by the partners. The commercial rationale of the structure may also lend more credence to tax authorities than pure trust structures.
  • Individual partners can add further structuring to protect against tax charges in their jurisdiction of residence.

Application to UK Residents

As noted above, FLPs are particularly attractive for UK residents since the changes to the UK trust tax regime were introduced, which have made it difficult to settle assets on trust in a tax-effective way.

UK Resident Non-Domiciliary

A UK resident non-domiciliary controlling an international business or businesses will again often have immediate family members residing in many jurisdictions throughout the world. An example of this is the established businessperson who has recently taken up UK residence under a Tier 1 Investor Visa.

The non-domiciliary will have the opportunity, during their first 17 years of residence in the UK, to settle offshore trusts without any UK Inheritance Tax (IHT) charges. Such a move is normally advised since, after that point, the individual becomes deemed domiciled for IHT purposes, which has the effect of bringing the worldwide estate into the UK IHT net.

For such individuals, the FLP has become an additional structuring vehicle employed when succession planning becomes an important consideration. Providing proper structuring has been undertaken, it will be possible for this succession process to be effected free of capital gains and inheritance taxes.

UK Resident Domiciliary

A UK domiciliary cannot generally settle assets on trust without incurring an immediate IHT charge (with the exception of small amounts settled within the IHT nil rate band). For this reason, the FLP can become a complete replacement for traditional trust structures as an alternative means to pass down wealth in families.

In particular, the contribution of assets to the FLP in exchange for a commensurate partnership interest will not trigger any IHT charges as there will be no diminution in the value of the transferor's estate. Other tax advantages for a non-domiciliary as compared with a trust include:

  • The gift of an interest in the FLP to future generations is not a chargeable lifetime transfer for IHT but a transfer which is entirely exempt providing the donor survives seven years from date of gift (i.e. what is known as a Potentially Exempt Transfer or PET)
  • No 10-yearly inheritance tax charge
  • Possible capital gains holdover relief available on transfer of shares or other assets to the FLP
  • Transferor retains an interest without being deemed to have a "reservation of benefit" over assets given away
  • Possibility of utlilising basic rate tax bands of family members.


The Family Limited Partnership provides a flexible and controlled way to manage succession planning within wealthy families, particularly where family members are resident in multiple jurisdictions. Such structures may complement or serve as an alternative to traditional trusts and foundations.

The tax transparency of the FLP gives the advantage of a zero tax presence; instead, individual partners can structure their interests to ensure minimum tax leakage according to their jurisdiction of residence.

For UK residents, the FLP is particularly attractive in enabling succession planning without the punitive tax charges sometimes associated with trusts.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Terence Pay
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.