When it comes to structuring the ownership of superyachts and aircraft, there is no shortage of informal advice available. However, it has recently come to our attention that some advisers and corporate service providers are recommending Isle of Man Limited Partnerships (LPs) as holding entities.

In our view, this approach may not align with the intended application of Isle of Man partnership legislation and could leave owners exposed to risks they may not be aware of.

The issue

An Isle of Man Limited Partnership is governed by the Partnership Act 1909, which defines a Limited partnership (or indeed any partnership) as:

“The relationship which subsists between persons carrying on a business in common with a view to profit.” The italicised part is fundamental to the legal basis of the structure.

Where a Limited Partnership exists purely to hold a private yacht or aircraft, with no genuine commercial activity and no intention of generating profit, the arrangement cannot fall within the definition set out in the legislation. The Partnership Act 1909. In other words, a structure that was established as a partnership may not actually be operating as one.

Why this matters

Many owners choose Limited Partnerships because they believe they provide certain advantages, including tax efficiencies, benefit in kind mitigation, privacy and limited partner protections.

However, if the underlying structure does not satisfy the legal requirements of a partnership, those protections for the client may not exist as the partnership fails to be a partnership.This could lead to questions from:

• Tax authorities
• Regulatory bodies
• Financial institutions
• Auditors and professional advisers
• Other third parties involved in ownership, financing or operation

The key question they may ask is simple:
Where is the business activity and profit motive required by the legislation?

If that question cannot be convincingly answered, the structure could come under greater scrutiny, not only undermining the very benefits the client believed they were obtaining but also damaging the reputation of the client to those third party providers.

Our view

Limited Partnerships remain highly effective structures when used in the right circumstances. The issue is not the Limited Partnership itself. The issue is whether the structure is being used in a way that is consistent with the legal definition of a Limited Partnership.

With our expert knowledge and experience, we focus on getting it right first time. Once the correct structure is in place, we find that our clients benefit from the untroubled use of their aircraft or yacht thereafter. And, of course, the time, uncertainty and cost of defending a structure are greater than setting it up correctly to begin with.

What should you do?

If you are considering forming an Isle of Man Limited Partnership to own a high value asset, now is the time to contact Martyn Fiddler and our team of experts, as we regularly advise owners, family offices and professional advisers on the suitability of ownership structures for high value assets.

If you have any concerns about whether an existing LP continues to meet the requirements of Isle of Man legislation, again you should speak to our expert team martin@martynfiddler.com
The cost of reviewing a structure and allowing us to put things right, is often far less than the cost of defending one that is later challenged.