Answers · UK 2025/26
What are the mixed partnership rules in the UK?
Mixed partnership rules are anti-avoidance measures that stop profits being diverted from individual partners (taxed at income tax up to 45%) to a corporate partner (taxed at lower corporation tax). Where an individual could have enjoyed that profit, HMRC reallocates it back to the individual and taxes it as their income. They apply to partnerships and LLPs with both individual and company members.
Full answer
A mixed partnership is one whose members include both individuals and at least one non-individual, usually a company. The mixed partnership rules, in Part 9 of ITTOIA 2005 (sections around 850C-850E), are anti-avoidance provisions designed to counter profit-shifting between the two. The target arrangement is straightforward. Individual partners pay income tax on their profit share, with the top slice taxed at 40% above gross GBP 50,270 and 45% above GBP 125,140, plus Class 4 National Insurance. A company partner pays corporation tax instead - 19% on profits up to GBP 50,000, 25% above GBP 250,000, with marginal relief between. By allocating a large slice of profit to a corporate partner, the partnership can shelter income at the lower corporate rate while the individuals retain economic control of the money. The rules bite when an individual partner has the power to enjoy the corporate partner's profit share, or where that share exceeds a commercial return for the company's capital and services. In those cases HMRC reallocates the excess profit from the company back to the individual and taxes it as that individual's trading income at their marginal income tax rate. The reallocation is for tax only; it does not change the legal profit-sharing agreement. Who is affected: professional practices, family LLPs and consultancies that introduced a corporate member partly to reduce tax. Genuine commercial arrangements - where the company contributes real capital, takes real risk or provides real services and is rewarded proportionately - are generally outside the rules. A simplified example: an LLP makes GBP 300,000 profit. It allocates GBP 200,000 to a company owned by the individual partners, leaving GBP 100,000 to the individuals. If the GBP 200,000 reflects no genuine corporate contribution, HMRC can reallocate it to the individuals, taxing it as income rather than at 25% corporation tax. This is specialist territory. Take professional advice before structuring a mixed partnership, and use the income tax and corporation tax calculators to compare the two outcomes.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.