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Budget boost for Lloyd’s limited partnerships

The migration of Lloyd’s Names to limited liability status took a step closer last week when the Chancellor of the Exchequer revealed in the Budget that legislation will be enacted to remove tax obstacles for conversion to English Limited Liability Partnerships.

Lloyd’s is currently consulting with the four remaining members’ agents and the Names’ representative body, the Association of Lloyd’s Names, over the merits of introducing English LLPs. Currently, Lloyd’s Names can only underwrite with limited liability via company structures – so called Namecos – or Scottish limited partnerships (SLPs). However, neither fully replicate the fiscal advantages provided by underwriting on a sole trader, unlimited liability basis. English LLPs – which have only been in existence since 2000 – appear to be more flexible but the costs of creating the legal and regulatory framework for their adoption have yet to be fully resolved.   

In a statement, Lloyd’s chairman Lord Levene welcomed the Government’s move:  “We have worked closely with the Government over the past year to develop this legislation and we are pleased that it is now taking steps to introduce it. The changes to the tax rules will remove one of the last barriers to individual Lloyd's members converting to limited liability underwriting.” 

Levene continued: “As a result, Lloyd's members should get effectively the same tax treatment as already applies to other sole traders when they convert to limited liability."  

According to the accountancy firm Ernst & Young, the measures – which will be adopted in the 2004 Finance Bill - include the ability to carry forward trading losses and provisions to ensure the smooth working of the capital gains tax relief normally available on incorporation of a business.

Although a sensitive issue, both Lloyd’s and the rating agencies are keen to end unlimited liability status, which are regarded as arcane and ill suited to modern insurance.  As of last year, new entrants can only underwrite on a limited basis and, according to Lloyd’s, 87 percent of its capacity is now provided by corporate capital.

Aside from the Lloyd’s capital issue, the Budget was broadly neutral for the UK insurance sector with the industry applauding the decision to leave Insurance Premium Tax untouched.

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