In Mark Wallace v HMRC [2025] TC09563, the First Tier Tribunal (FTT) found that a non-UK resident partner in UK-based Limited Liability Partnerships (LLPs) was liable to Income Tax on their share of profits derived from UK trading activities with non-UK counterparties.
Mr Wallace, a Non-UK resident, was a member of three Limited Liability Partnerships (LLPs) which had registered offices in the UK. He claimed that his share of the Profits should not be taxable in the UK under s.849(3) ITTOIA 2005.
- S.849(3) states that for a non-UK resident partner, the profits of the partnership trade are to be calculated as if the firm were a non-UK resident individual.
- Mr Wallace interpreted the legislation to mean that only UK-source income should be taxed.
- The LLP's income arose solely, or very substantially, from lease rentals from overseas lessees.
- Mr Wallace suggested that if there was trading activity in the UK, it would have been very slight and would be restricted to the initial period(s) when the lease and leaseback arrangements were put into place.
- Reference was also made to the Double Tax Treaty (DTT) and parliamentary Explanatory Notes to support his interpretation.
- HMRC issued four Closure notices charging Mr Wallace with additional Income Tax on the partnership profits omitted from his Self Assessment tax returns.
- HMRC argued that Mr Wallace's approach amounted to a flawed, over-literal reading of s.849(3) and that s.849(3) does not change the location of the trade.
- Mr Wallace Appealed to the First Tier Tribunal (FTT).
The FTT found that:
- The hypothetical individual in s.849(3) is stateless, which makes the DTT irrelevant in this situation.
- The LLPs were trading wholly in the UK.
- The profits were taxable in the UK, regardless of the lessees' location.
- There was nothing to suggest that activity took place in the UK only for a very small period at the beginning of each LLP's life.
- Even if this were the case, it would not mean that the trades ceased at that point or that the income was anything other than trading income.
- Mr Wallace was not exempt from UK tax on his share of the partnership profits.
- The closure notices issued by HMRC were correct.
The appeal was dismissed.
Useful guides on this topic
Non-resident Tax Toolkit
This toolkit covers the key UK tax issues for non-UK resident individuals holding UK assets and property and working in the UK.
SRT: Statutory Residence Test
What is the Statutory Residence Test (SRT)? Why is it important and how does it determine a person's residency?
Partnerships: Unlimited or limited?
What types of partnership are there? What are the differences?
Partnerships: How to prepare partnership and partners' tax returns
How to prepare partnership returns. How are partnership profits calculated? How are corporate members of partnerships taxed? What are the differences between the tax treatment of individual and corporate partners?
Closure notices
When does HMRC issue a Closure Notice? Can a taxpayer demand one? Are there appeal rights?
Tax treaties: Links & OECD glossary of terms
What are the UK's Double tax treaties? What are the definitions and common terms are used in Double Tax Treaties? Where can I find a glossary?
How to appeal an HMRC decision
Disagree with an HMRC decision? How do you appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?
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