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S850C (6) ITTOIA 2005

»Ê¹ÚÌåÓýapp mixed membership partnership legislation is applied before the profit deferral arrangements legislation applicable to AIFM firms.

This means that if the individual member is re-allocated profit from a corporate member, they can elect for the “restricted� profit share to be treated as profits of the AIFM partnership, in exactly the same way as if the profit had been allocated to the individual in the first place.

»Ê¹ÚÌåÓýapp AIFM partnership itself is not treated as a non-individual partner, so the excess profit allocation rules do not apply to the allocation by the individual to the AIFM partnership.

Example 1

This example looks at the basic position where deferred profit is allocated to a corporate member.

X, a partner in an AIFM firm, is due a profit share of £100,000 which is to be deferred under the AIFM rules.

»Ê¹ÚÌåÓýapp firm allocates this deferred profit to a corporate member.

»Ê¹ÚÌåÓýapp excess profit allocation rules apply. Condition X is satisfied and this £100,000 is re-allocated to X. Subject to the conditions being met, X will be able to use the AIFM mechanism described in Chapter 4 in respect of the profits reallocated to him.

Example 2

»Ê¹ÚÌåÓýappre is no re-allocation of profits where the profits are treated as allocated to the firm itself under the AIFM Rules.

»Ê¹ÚÌåÓýapp firm has made an election so that “relevant restricted profitsâ€� can be allocated by individual members to the firm.

»Ê¹ÚÌåÓýapp individual allocates their deferred profits of £100,000, allocated to them under the profit allocation rules, to the firm. As the firm is treated as an individual, there is no re-allocation from the firm back to the individual under the mixed membership partnership rules.

»Ê¹ÚÌåÓýapp firm pays tax on that amount in accordance with the AIFM rules.