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Profit fragmentation – Finance Bill update

Substantial changes have been made to the profit fragmentation anti-avoidance since the original consultation was published. These rules apply to both individuals and corporates from April 2019. Businesses, including partnerships, with international aspects should consider whether they may apply and, if so, whether they need to take action.

Profit fragmentation – draft legislation

The new anti-avoidance rules on profit fragmentation apply from April 2019. They are designed to target abusive arrangements but the draft legislation is much wider. We believe that many normal businesses may need to notify HMRC of arrangements involving overseas entities under the new rules, even if it is clear that no extra tax will ultimately be due. We have brought this to HMRC’s attention but it is unlikely that any industry specific exemptions will be introduced.

Taxation of partnerships in the UK

Most Private Equity funds include partnerships somewhere in their structure. Although for most relevant UK tax purposes the partnership is treated as tax transparent the tax rules associated with how profits should be shared should be important to many Private Equity managers.