Allocation of profits under the mixed partnership rules

The taxpayer established an equity fund managed by two UK limited liability partnerships AAM LLP and AF LLP in both of which he was a partner. He also set up a company W Ltd as a corporate partner of the LLPs. The taxpayer was W Ltd’s only director and employee. The shares in W Ltd were held by an offshore company based in the British Virgin Islands. In 2014-15 the taxpayer retired as a partner of AAM LLP and as an employee of W Ltd although he remained director. In November 2014 AAM LLP and AF LLP were incorporated and the taxpayer became director of both.

HMRC assessed the taxpayer on profits reallocated from AAM and AF to him under the mixed partnerships rules (ITTOIA 2005 s 850C) on grounds that the profits were not earned by W Ltd but had been allocated to...