Partnerships and Trusts as Legal Persons … What about the Tax?

An English partnership, for tax purposes, is transparent, meaning that the partners are subject to tax on the income and capital profits; however, in many respects a partnership is an express trust—which is not transparent for tax purposes. There has already been some consideration from a legal perspective as to the personality of a partnership and for the potential tax status of a limited liability partnership, but how does this tie into the tax treatment of trusts if the two structures are so similar? The Law Commission and Scottish Law Commission joint report of 2003 recommended that partnerships be treated as a “sui generis”—a unique legal person in law—to reflect commercial reality and encourage continuity, but not to become a body corporate. It also suggested that limited partnerships might have the option to avoid legal personalities. A trust is arguably a sui generis legal person as well as an “opaque” entity for tax purposes, so if the Law Commissions’ recommendation could ever be carried out to bring trusts and partnerships into line from a legal and commercial perspective, could the tax treatment not be brought into line too? Keywords: partnership; trusts; sui generis; personality; beneficial ownership.