There is no legal procedure that turns a partnership into an LLP. The partners incorporate a new LLP at Companies House and transfer the partnership’s business, assets and staff to it, after which the old partnership ends. Tax law is designed so that, done properly, this is close to neutral: each partner’s trade is treated as continuing, no capital gain arises if profit and asset shares stay the same, and reliefs remove Stamp Duty Land Tax and stamp duty on the transfer.

Can a partnership simply convert into an LLP?

No. A general partnership is a relationship between people, while an LLP is a body corporate with its own legal personality under section 1 of the Limited Liability Partnerships Act 2000. The two are different legal animals, so “conversion” is shorthand for setting up the LLP and moving the business across. HMRC’s Partnership Manual at PM131430 describes it in exactly those terms, as transferring the general partnership business to an LLP.

The first members of the LLP are the people who subscribe their names to the incorporation document (section 4(1)). In a straightforward conversion they are the existing partners, and it is usually important that they are all the existing partners and nobody else, because the stamp tax reliefs below depend on it.

What are the legal steps?

  1. Check the partnership agreement. Some agreements require a particular majority to transfer the business or restrict the use of the firm’s name. Get every partner’s agreement in writing.
  2. Incorporate the LLP. GOV.UK guidance requires a name ending in “Limited Liability Partnership” or “LLP”, a registered office address in the same country as registration, at least two designated members and registration with Companies House. The fee is £100 using software or £124 on paper. Each individual member must also have their identity verified for Companies House.
  3. Sign an LLP agreement. Section 5(2) allows an agreement made before incorporation between the subscribers to impose obligations on the LLP once it exists. Most firms adapt their partnership agreement; see duties of LLP members for what changes.
  4. Sign a transfer agreement. This moves goodwill, equipment, work in progress, debtors, bank balances and property from the partners to the LLP on an agreed date, and usually has the LLP take over trade creditors.
  5. Deal with contracts and property. Review each client, supplier, finance and lease contract to see whether it can be assigned or needs the other party’s consent or a new contract with the LLP. Landlords often have to consent to a lease assignment.
  6. Move the staff. GOV.UK guidance explains that TUPE protects employees on a business transfer where the identity of the employer changes, so jobs, terms and continuity of employment usually move to the LLP. The duty to inform and consult employee representatives before the transfer applies.
  7. Update everything public facing. Letterheads, invoices, websites, bank mandates, insurance and regulator records must show the LLP from the transfer date.

What happens to the old firm’s debts and contracts?

Moving the business does not move the partners’ existing liability. Under section 17(2) of the Partnership Act 1890 a partner does not cease to be liable for debts and obligations incurred before leaving a firm, and section 17(3) allows a release only by agreement with the creditors. So claims arising from work done before the transfer date can still be brought against the former partners personally, which is why professional firms keep the old firm’s insurance cover in place for past work. The extent of that exposure is covered in partners’ joint and several liability.

Notice to clients and suppliers is also important. Section 36(1) of the 1890 Act lets a person who deals with a firm after a change treat the apparent members of the old firm as still being members until they have notice of the change. Clear written notice that new work is being done by the LLP is what moves new obligations onto the LLP’s limited liability footing.

How is income tax affected?

Section 863 of the Income Tax (Trading and Other Income) Act 2005 treats the activities of a trading LLP as carried on in partnership by its members, so the LLP is transparent for income tax just like the old firm. PM131430 and PM131530 confirm that where the LLP succeeds to the old partnership’s business, each partner’s notional trade is regarded as continuing. There is no cessation, and a partner can carry forward unused trading losses from the old partnership against their share of the LLP’s profits.

Administratively, Companies House incorporation triggers a new Self Assessment record with a new Unique Taxpayer Reference. HMRC says the partners can choose to use the new reference or keep the old one, and the nominated partner should tell HMRC as soon as possible to avoid returns being issued under both. The partnership return process itself is unchanged; see the partnership tax return.

One new risk appears. The salaried member rules in section 863A apply to LLPs but not to general partnerships, so any partner with a mainly fixed reward should be checked against them before the transfer. See the salaried member rules.

Are there capital gains, SDLT or stamp duty charges?

Capital gains. Section 59A of the Taxation of Chargeable Gains Act 1992 treats a trading LLP’s dealings as dealings by its members, who own fractional interests in its assets (CG27050). PM131430 states that the transfer is not a disposal by the partners of their interests in the old partnership’s assets unless their fractional interests change as a result.

Stamp Duty Land Tax. Section 65 of the Finance Act 2003 relieves a transfer of property to an LLP in connection with its incorporation if three conditions are met (SDLTM24500): the effective date is within one year of incorporation; the transferor is a partner in a partnership made up of all the persons who are or are to be members of the LLP and no one else, or holds the property as nominee or bare trustee for such partners; and any change in the partners’ proportions is not part of a scheme with a main purpose of avoiding tax. The wider partnership SDLT rules are covered in SDLT and partnerships.

Stamp duty. Section 12 of the 2000 Act gives a matching relief from stamp duty on documents transferring property to the LLP in connection with its incorporation, with the same one year window. STSM022150 says the claim goes to HMRC for adjudication, with evidence of the transferor’s status, the partnership shares immediately before incorporation and the members’ interests immediately after.

Inheritance Tax. PM131430 confirms there is no break in a partner’s holding of the partnership interest.

What about VAT and PAYE?

These cannot be ignored, because a new legal person takes over. PM131430 says the transfer of a going concern rules should apply so that no VAT is charged on the transfer of the business, and the LLP can take over the partnership’s VAT registration number by sending form VAT68 to HMRC.

For payroll, the old partnership and the LLP can agree that the PAYE scheme simply continues under the succession rule in regulation 102 of the Income Tax (Pay As You Earn) Regulations 2003. Otherwise the LLP starts a new scheme and the old partnership closes its scheme and issues forms P45 to all employees.

How does a conversion work in practice?

Illustration only. Four surveyors share profits and capital equally in a partnership that owns its office. They incorporate an LLP with the same four people as members on 1 May and transfer the business and the office on 1 July, keeping their shares at 25% each.

  • Each partner’s trade continues for income tax, so no cessation adjustments arise.
  • Fractional interests in the office and goodwill are unchanged, so no capital gain arises.
  • The office transfer is within one year of incorporation and to an LLP whose members are exactly the partners, so section 65 relief removes the SDLT charge.
  • The VAT number moves across on form VAT68 and the PAYE scheme continues by agreement.

If instead a fifth person joined as a member on incorporation, the SDLT condition that the partnership is made up of all the members and no one else would fail. It is usually simpler to convert first and admit new members afterwards.

What mistakes come up on conversion?

  • Missing the one year window. Property that is not transferred within a year of incorporation loses the SDLT and stamp duty reliefs.
  • Changing shares at the same time. Altering profit or asset shares on conversion can trigger capital gains and put the SDLT relief at risk.
  • Running two tax references. Failing to tell HMRC which UTR will be used leads to duplicate returns and penalty notices.
  • Assuming past liability disappears. The LLP limits liability only for obligations it takes on; former partners stay exposed for the old firm’s work.
  • Not telling clients. Without notice, new work may still be treated as done by the old firm.
  • Ignoring the salaried member rules. A fixed share partner can become taxable as an employee of the LLP.

For a comparison of the structures before deciding to convert, see partnership, LLP or limited company.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.