Scottish Limited Partnerships – or SLPs – are strange entities in the eyes of many people. They must have at least one limited partner (whose risk is limited to the amount invested and who takes no part in the management of the SLP) and one general partner (who takes all the decisions and bears all the responsibility). Crucially, they also have their own separate legal personality – unlike Limited Partnerships in (for example) England and Wales.

The fact that SLPs have their own legal personality means that they can own assets; borrow money; grant security and so on. They are also transparent for tax purposes, so that the SLP will not have any liability to UK taxation in Scotland. Rather, the partners will be liable to taxation in their own jurisdictions.

Taken together SLPs are very useful for the investment industry since they allow give an entity in a law abiding jurisdiction, separate legal personality and tax transparency. But those useful attributes have also attracted criminals, who have been using them for money laundering and so on. If the limited partners are entities based in tax havens which require no identification of beneficial owners, the risk is that you end up with a legitimate-sounding entity owned (through several layers) by criminals in other countries. As an example, at the latest count more than 500 SLPs are registered to an address in social housing in a very poor part of Edinburgh!

Inevitably, the UK government is cracking down on the misuse. The first step is to require greater disclosure of who the beneficial owners are of the interests in the SLP, with the threat of UK “freezing and seizing” laws should anything untoward be found. It is to be hoped, therefore, that this crackdown will stop the crooks from operating – but not in a way that impacts on the legitimate use of SLPs.

SLPs have played, and will play, an important part in the structure of investment funds. We have used SLPs in a number of funds where we have been instructed, and they have performed their purpose well. So, the hope is that the steps taken by the UK government do not cause issues for the use of SLPs in the financial industry.

If you are interested in learning more about how SLPs could be used by your clients, please get in touch with us.

John Clarke or Alison Marshall