I am aware, for tax purposes it is not a divi, call it a disbursement of profits if you like
Tax Fairness Question
- Thread starter SpeedFreak
- Start date
I am aware, for tax purposes it is not a divi, call it a disbursement of profits if you like
100% with everyone else here.
Split the "profits" equal - then everyone else settles their liabilities (tax, SL etc) as their own affairs. Unless there is something else in the partnership agreement that says otherwise. With a General partnership - everything is split equally between the parties, unless there is something else in the agreement. Worth checking this before raising the issue.
If "A" is an accountant - I'd be deeply concerned about his ability to do his job properly and the advice he's potentially giving to his clients.
Split the "profits" equal - then everyone else settles their liabilities (tax, SL etc) as their own affairs. Unless there is something else in the partnership agreement that says otherwise. With a General partnership - everything is split equally between the parties, unless there is something else in the agreement. Worth checking this before raising the issue.
If "A" is an accountant - I'd be deeply concerned about his ability to do his job properly and the advice he's potentially giving to his clients.
Soldato
Why would they even be entered in an unlimited liability partnership? Just set up an Ltd. If the tax liability is some £10,000 then the business is clearly making enough to be able to spend the £12 it costs to incorporate, and the £200 for someone to double check their account if they so want. It can all easily be done themselves though.
Soldato
The OP implies that a liability exists prior to the income, thus requiring income to be paid, to account for the liability.
If person A pays more, this tax liability is now bigger, so they must pay more, further increasing the liability and what springs to mind is Achilles vs the tortoise, however i could be in a state due to sleep deprivation ?
If person A pays more, this tax liability is now bigger, so they must pay more, further increasing the liability and what springs to mind is Achilles vs the tortoise, however i could be in a state due to sleep deprivation ?
Seems a very odd set up.. Why even have a partnership?
If running it like a business
3 people jointly own 3 properties
3 properties generate 3 income streams that go into the company account
3 lots of overheads /expenses taken out of the total income leaves a profit.
Profit is then split 3 ways
If running it like a business
3 people jointly own 3 properties
3 properties generate 3 income streams that go into the company account
3 lots of overheads /expenses taken out of the total income leaves a profit.
Profit is then split 3 ways
No partnership agreement so it defaults to an equal split.
The main reason for concern is that A will probably be losing personal allowance soon and I expect will want marginal 65% tax paid.....
The main reason for concern is that A will probably be losing personal allowance soon and I expect will want marginal 65% tax paid.....
Agree, it's a self feeding income stream, technically creating a larger liability by iteration.
No issues with overall competence, this is just a situation that has probably developed in no small part due to cultural primogeniture.
Soldato
Are B & C far from higher tax bracket? Can you tell A that they had a pay rise and are now also higher rate tax payers? 
They are not miles away but won't be going over it any time soon.
I'm quoting you but also responding to some other posters as well.
- There's nothing wrong with the partnership paying personal tax liabilities of the partners (or members if an LLP). It just forms part of the profit share assigned to that partner.
- The default position without agreement is equal share, but the default position can be changed by agreement which can be express or implied. No written agreement does not mean the profit share has to be equal.
- Partnerships actually have some useful tax features, particularly for properties.
- The fact that Sibling A is an accountant and has an unequal profit share doesn't immediately mean he's been unethical or that there's fraud. As above deviating from an equal share is permissible and often happens, and agreement does not need to have been made in writing.
- If there is the spectre of a partnership dispute incoming, and that your spouse is going to move away from a historical filing position then your spouse may want to get some legal advice. Written agreements are always better, but when disputes start over verbal or implied agreements you absolutely want to make sure you are getting all your ducks in a row legally.
Associate
If and when the properties are sold, I wonder if A will similarly be expecting an unequal split of the proceeds?
I would have thought that would be easy seeing as a larger portion of the partnership is effectively getting done over by the smaller portion of the partnership.
Your other half will know you have their best interests to heart so will trust you, so it's just a case of talking to the other sibling (separate from sibling A).
Worst case scenario, sibling C (not your other half) can bring in an independent third party who doesn't have a conflicting interest for a final opinion.
Man of Honour
I have an alternative suggestion: if A is so bothered about paying 40% tax on part of their income because their income is that high, the simplest solution would be for them to donate enough of their income to charity to bring their remaining income below the higher tax band. Then there wouldn't be any issue with the profits being split equally - problem solved!
What A is doing now is saying they're entitled to a much bigger share of the profits than B and C solely because they're already richer than B and C. And they've been getting away with it, so they will probably continue to get away with it.
What A is doing now is saying they're entitled to a much bigger share of the profits than B and C solely because they're already richer than B and C. And they've been getting away with it, so they will probably continue to get away with it.
If you think that's worst case scenario you have no idea how bad it could potentially get!! Think worst case being all parties losing all wealth as it gets eaten up by fees due to acrimonious legal proceedings!
Soldato
He's stealing from your partner and he knows it, it isn't a mistake no one with a professional qualification could be that dimwited, he should be struck off.
You have nowhere near enough information to assert that.
Soldato
If it is a mistake then he's incompetent.
Man of Honour
They're continuing an existing partnership agreement. A partnership agreement that very strongly favours them, but that's business. Their "I'm entitled to more than you" attitude is probably part of the reason why they have a higher income in the first place. It's not even considered unethical to be unfair in the context of business, let alone illegal.
Or it is an arrangement that was previously agreed. A bad decision by B and C doesn't mean theft or incompetence by A. It may not even be a bad decision, maybe A introduced a property worth 3x what the others contributed or something. You simply don't have enough facts.