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The tax liability on interest arising on a partner’s loan to their partnership.
My client is a member of a UK trading limited liability partnership (LLP). Interest is to be paid by the LLP to my client on a loan that does not go through his capital account; instead there is a separate agreement under which the LLP agreed to pay my client a fixed rate of 3% a year on his loan.
I understand that interest paid on a partner’s capital contribution to the partnership is treated for tax purposes as part of the partner’s profit share.
Here however the partner made a separate loan to the partnership and interest is to be paid on that loan which would be taxable as interest income in the normal way.
Consideration is sought as to the relevance of the withholding tax provisions in this scenario – which the partnership’s adviser argues apply only to companies paying interest to individuals ...
