Lloyd’s profits are taxed on a three year time lag. The underwriting result (net of expenses) for the 2021 calendar year will be taxed in 2024 – year to 31 December 2024 for Namecos, and tax year 2024/25 for LLP members.
Sales of capacity are subject to capital gains tax in the (tax) year of sale.
Whilst the LLP is a limited liability entity, it does not exist for tax purposes.
Therefore, for LLP members, the tax treatment is the same as for any partnership – each member is taxed on their share of the profits, regardless of whether these are withdrawn from the LLP, at their highest marginal rate of tax. They will also be liable to Class 2 and Class 4 National Insurance Contributions, where applicable.
New Legislation, enacted in Summer 2014, restricts the amount of LLP profits which can be allocated to non-natural members of LLPs (i.e. trusts or companies), where the LLP also contains individuals as members. If you would like to have a non-natural person as a member of a LLP, this new legislation must be considered in detail before setting up a structure such as this.
Converting Names may have an existing Special Reserve Fund (SRF). SRF may not be added to from LLP profits. In principle, it will be released once all open years for the unlimited Name have closed and will be taxable in full at that time.
The income earned from the LLP will be ‘pensionable’ income for the LLP members, under current pension legislation.
It has previously been possible for LLPs to make a tax-deductible notional transfer to a Claims Equalisation Reserve (CER). This is no longer the case from January 2016, and transfers previously made are now unwinding, resulting in taxable profits arising.
A Nameco is again a limited liability vehicle. However, a Nameco has a separate tax identity of its own and, as a result, pays corporation tax on its underwriting profits. Currently Nameco’s will pay Corporation Tax at a rate of 19% on any taxable profits they make. However, in the March 2021 budget, it was announced that from 1 April 2023 these rules will be changing. The effects of these changes are that where a Nameco makes taxable profits of less than £50,000, then the profits will only be charged to Corporation tax at a rate of 19%, whereas where a Nameco makes profits in excess of £250,000, then it will pay Corporation Tax at a rate of 25% on the whole taxable profits. Additionally, where Nameco’s have taxable profits of between £50,000 and £250,000, it will pay Corporation Tax at a rate of 19% on £50,000 of the profits and the rest of its profits will be taxed at a rate of 26.5%. Furthermore, where Nameco’s are in a corporate group, the £50,000 and £250,000 thresholds will be reduced based on the amount of companies that the Nameco is ‘connected’ to.
As with the LLP, it has also been possible for Namecos to make CER transfers, and again these are now reversing.
As the Nameco is a separate legal entity with its own tax liability, the post-tax profits in the company can either be used to: