If you run a property portfolio with your spouse, a sibling, your parents or a business associate, and you have never put your arrangement in writing, the law has already written it for you. You almost certainly will not like the terms. Most UK property partnerships run on a verbal understanding: a shared sense of how profits split, who handles the management, what happens if someone wants out. The arrangement works for years because the relationships work. Then someone dies, falls out, or wants their money, and the gaps in that understanding turn into a fight.

The Partnership Act 1890 makes your verbal agreement legally binding, then fills every gap with statutory defaults that almost always cut against what you actually intended. Section 24 sets nine default rules covering profit-sharing, capital interest, management rights, salary, admitting new partners, and consent to a change in the business. Section 26 lets any partner dissolve a partnership-at-will simply by giving notice. Section 33(1) automatically dissolves the whole partnership on the death or bankruptcy of any partner. Section 14 makes anyone held out as a partner liable to third parties as if they really were one, even where your internal arrangement says otherwise. A written agreement is how you take those defaults off the table and put your own terms in their place.

This assumes your arrangement already counts as a partnership. If you are not sure it does, start with does your business qualify as a partnership, which covers the PA 1890 s.1 four-test gate. Everything below applies once the partnership exists, across general partnerships, limited partnerships and LLPs.

Free interactive tool

Free Incorporation and company structures tool

See the real cost and saving of incorporating

Our interactive tool is built for a larger screen. Tell us your numbers and a specialist will send your figure and the next sensible step, with no obligation.

Step 1 of 2, about you

Step 1 of 2, about you

The PA 1890 section 24 nine defaults

Section 24 is the workhorse. It sets nine rules that govern your partnership in the absence of a contrary written or oral agreement, and six of the nine are almost always wrong for a property partnership.

  1. s.24(1) Equal share of capital, profits, and losses. Everyone shares equally regardless of capital contributed. Put in the £200,000 deposit while your partner puts in nothing, and you still split profits 50/50.
  2. s.24(2) Indemnity for ordinary partnership business. The partnership must indemnify you for payments and personal liabilities you incur in the ordinary conduct of partnership business. Sensible; usually kept.
  3. s.24(3) Interest at 5% on partner advances beyond capital. Advance money beyond your agreed capital and you get statutory 5% interest. That rate was set in 1890 and is low for a modern partnership; usually varied.
  4. s.24(4) No interest on capital before profits ascertained. You have no statutory entitlement to interest on your capital before profits are determined. Restrictive if you are the capital-heavy partner; usually varied.
  5. s.24(5) Every partner may take part in management. A sleeping-partner setup needs s.24(5) displaced to confine that partner to a capital-only role. Leave it in and your silent partner holds a statutory management right they are not exercising, with no documented allocation of who actually runs things.
  6. s.24(6) No salary for any partner. If you do most of the operational work, you have no statutory right to a salary for it. Typically displaced.
  7. s.24(7) Unanimous consent required to admit new partners. One dissenter blocks any new admission. Usually varied to a majority or supermajority.
  8. s.24(8) Majority on ordinary matters, unanimity for change in business nature. One dissenter can veto any change in the kind of business you do. Moving from residential BTL into commercial property, HMO or development needs unanimous consent under the default. Usually varied.
  9. s.24(9) Books at principal place of business with all-partner access. Standard; usually kept.

Worked example: the s.24(1) default disaster

Two siblings, Mr A and Mr B Mawell-Estate, form a partnership to acquire and let a £400,000 residential BTL portfolio. Mr A contributes the £200,000 deposit (the £200,000 balance is mortgaged). Mr B contributes no deposit but commits to day-to-day management: tenant relationships, maintenance, rent collection, accounts. Nothing is written down.

What they both assume: Mr A gets some return on his £200,000 capital exposure, Mr B gets paid for his management time, and the profit split reflects capital plus labour. What PA 1890 s.24 actually delivers is none of that:

  • s.24(1): profits split equally, 50/50, regardless of capital exposure.
  • s.24(4): Mr A entitled to no interest on his £200,000 capital before profits are ascertained.
  • s.24(6): Mr B entitled to no salary for his management time.

Year 1 produces £30,000 net rental profit. Each sibling takes £15,000 under s.24(1). Mr A's effective return on £200,000 of capital is 7.5% gross, before he pays higher-rate income tax on his £15,000 share; Mr B's return on zero capital is, of course, infinite. Mr A feels cheated, with good reason. Mr B points at s.24(1) and says the default is the default. Neither can prove any other terms were agreed, so they are left with either a negotiated written agreement after the event (expensive once relationships are strained) or litigation.

A written agreement signed at the start would have fixed all of this: capital contributions and interest on the differential capital (varying s.24(3)), a salary for Mr B's management work (varying s.24(6)), and profits split on an agreed formula (say 60/40 to Mr A to reflect capital, or 50/50 only after salary and interest on capital have come off the top).

The s.26 and s.33(1) termination rules

Under section 26, a partnership at will (one with no fixed duration) can be dissolved on any partner's notice. Under section 33(1), the partnership dissolves automatically on the death or bankruptcy of any partner, unless you have agreed otherwise.

Both are dangerous for a property partnership, because you hold long-lived assets: residential portfolios with multi-year mortgages, planning consents that take years to mature, refurbishment programmes that run ahead of any return. One partner walking away or dying should not be able to collapse the whole structure, but under the defaults it does exactly that.

Worked example: s.26 dissolution-on-notice

Three partners (Mr and Mrs Kapoor plus their business associate Mr Singh) hold a £1.5 million residential BTL portfolio with £900,000 of mortgages across the properties. No written agreement sets a minimum duration or any notice period.

In year 3 Mr Singh hits personal financial difficulty and serves notice of dissolution under PA 1890 s.26. The partnership dissolves immediately. Lender notification kicks in on partnership-banked facilities, and a change in the borrower's identity brings re-underwriting risk and possible fees. Property titles may need restructuring at HM Land Registry if held as partnership property. CGT crystallises on partnership-asset disposals under TCGA 1992 s.59 and SP D12.

The Kapoors lose control. They cannot keep the partnership running without Mr Singh's consent after dissolution, and he can force a sale of partnership assets to take his share in cash. The long-term portfolio plan is gone.

A written agreement would have headed this off: a minimum duration (say 10 years), a notice period (say 12 months in writing), and continuation provisions under which the remaining partners buy out anyone leaving on an agreed formula and the partnership carries on. The mortgage facilities, the property structure and the family's plans all survive.

Worked example: s.33(1) death-dissolution

Four family members (parents and two adult children) operate a 7-property residential portfolio as a general partnership.

In year 5 the father dies unexpectedly. PA 1890 s.33(1) triggers automatic dissolution, subject to contrary agreement, and there is none. The consequences cascade:

  • The partnership dissolves; assets must be valued and wound up under partnership-dissolution rules.
  • CGT crystallisation: each surviving member is treated as disposing of their fractional share to the dissolved-partnership pool per TCGA 1992 s.59 and SP D12; gains accrue at member level on the dissolution event.
  • IHT exposure: the father's fractional share is included in his estate at market value; the family's residence nil-rate band and other reliefs interact.
  • Mortgages: lender notification and re-underwriting are required on the dissolved-partnership-to-new-structure transition.

A written continuation clause would have changed the outcome completely: the father's share passes automatically to the surviving partners on an agreed formula (for example NAV at the last accounts), his estate is paid out in cash or by promissory note over an agreed period, and the partnership continues without dissolution. CGT then bites only on later actual disposals; the IHT charge still arises, but against an undissolved business interest rather than a forced wind-up.

The s.14 holding-out exposure

Section 14 imposes partner-equivalent liability on anyone who, by words spoken or written or by conduct, represents themselves (or knowingly lets themselves be represented) as a partner in a firm, where a third party then gives credit or relies on that representation. It bites whether or not the s.1 four-test gate is satisfied, and whether or not your internal agreement says that person has no management role. The internal paperwork does not help you here; only what the outside world sees does.

Worked example

Mrs Singh contributes capital but takes no management role; she is the sleeping partner. Yet the partnership letterhead names her: "Singh Property Partnership, Partners: Mr A Singh, Mr B Singh, Mrs Singh". The website carries the same listing. A commercial lease lists all three as landlords.

In year 2 the partnership defaults on a £40,000 supplier invoice for refurbishment work. The supplier sues all three named partners. Mrs Singh's defence is that she is a sleeping partner with no management role under the internal agreement.

It fails. Under PA 1890 s.14 she held herself out (or knowingly allowed herself to be held out) as a partner through the letterhead, website and lease, the supplier relied on that, and so she is liable for the debt as if she were an active partner. The internal agreement gives her nothing against a third party.

Careful structuring would have protected her: keep the sleeping partner's name off the letterhead, website and external documents, describe her clearly as a capital partner without implying any management role, make sure outside parties never extend credit on the strength of her name, and use different document conventions for active and passive partners. If you are the silent money behind a portfolio, this is the exposure to take seriously.

The four partnership types

UK law gives you four distinct partnership structures to choose between. Which one fits depends on the liability you are willing to carry, how much compliance you can stomach, who your members are, and what the business actually does.

General partnership (PA 1890)

The base form. Every partner has unlimited joint-and-several liability for the partnership's debts. There is no Companies House filing, and the partnership is tax-transparent under ITTOIA 2005 Part 9 (and TCGA 1992 s.59 for capital gains). The PA 1890 default rules apply unless your written agreement says otherwise.

This suits a small or family setup where limited liability is not your main worry, where simplicity is worth more to you than ring-fencing your exposure, and where you are giving personal guarantees on the borrowing anyway.

Limited partnership (LP, LPA 1907)

At least one general partner with unlimited liability, plus at least one limited partner whose liability is capped at the capital they contribute. The limited partner cannot take part in management without losing that protection under LPA 1907 s.6(1). Companies House registration is required, now with expanded reporting and ID verification under the ECCTA 2023 Part 2 reforms, covered in Companies House changes to limited partnership requirements.

You will rarely want this for property. The LLP has largely displaced the LP for landlord setups because LLP members can manage without forfeiting limited liability. LPs survive mainly in specific private-fund and investor-vehicle structures.

Limited Liability Partnership (LLP, LLPA 2000)

A body corporate at law (LLPA 2000 s.1(2)) but transparent for income tax (ITTOIA 2005 s.863) and CGT (TCGA 1992 s.59A). Your liability as a member is limited to what you agree in the LLP agreement or contribute to the LLP, and unlike an LP limited partner you can take an active part in management without losing that protection.

You need Companies House registration, annual accounts under SI 2008/1911 (the filing mechanics are in LLP accounts), at least two designated members under LLPA 2000 s.8, and the post-ECCTA ID verification on its own LLP rollout schedule. The tax side, including the salaried-member rules at ITA 2007 ss.863A to 863G and the mixed-membership rules at ITA 2007 ss.850C to 850E, is set out in LLP and taxation benefits.

For most property partnerships, the LLP is the most flexible form you can pick.

Corporate-partner setups

Any of the three forms can include a body-corporate member, usually a limited company. In an LLP this is common for family-investment-company overlays and external-investor setups. Where individual and corporate members sit side by side, the mixed-membership rules at ITA 2007 ss.850C to 850E are the anti-avoidance regime to watch. The corporate-member-in-LLP mechanics are covered in detail in hybrid limited liability partnership.

The six common partner roles

Whichever type you choose, each partner usually slots into one of six recognisable roles, and the role drives management responsibility, profit share, tax treatment and liability.

  • Managing partner or senior partner. Carries the day-to-day management. Typically takes a salary (displacing s.24(6)) and a weighted profit share above an equal split, and in an LLP is commonly a designated member.
  • Sleeping or dormant partner. Puts in capital but does no management. Needs s.24(5) management rights displaced internally and s.14 holding-out exposure managed externally, through how the letterhead, website and leases name people.
  • Salaried partner. Takes a salary, or something equivalent, regardless of profits. In an LLP, the Conditions A, B and C analysis under ITA 2007 ss.863A to 863G decides whether HMRC treats that member as an employee for PAYE and secondary Class 1 NIC. The detail is in HMRC's new guidelines for LLPs.
  • Junior partner. A fixed or capped share; usually an entry-level partner on a path to senior partnership, and usually the first out under the buyout mechanics.
  • Limited partner (LP only). Capital and liability limited to the amount contributed; no management permitted under LPA 1907 s.6(1).
  • Corporate partner or member. A body-corporate member. Common for FIC-overlay setups (the FIC sitting as corporate member of a family LLP) or external-investor setups, and exposed to the mixed-membership rules in an LLP.

See the real cost and saving of incorporating

Skip the spreadsheet. Tell us about your situation and a specialist will review your position and the next sensible step, with no obligation.

Step 1 of 2, about you

Step 1 of 2, about you

The partnership-agreement clause checklist

A well-drafted property partnership agreement covers twelve things.

  1. Capital contributions. Initial and ongoing, plus interest on capital (displacing s.24(4)).
  2. Profit-sharing ratios. How profits divide: equally, in proportion to capital, or on an agreed formula (displacing s.24(1)).
  3. Drawings and remuneration. Monthly drawings entitlements, partner salaries (displacing s.24(6)), and year-end balancing.
  4. Loan accounts. Advances beyond capital and the interest on them (displacing s.24(3)).
  5. Decision-making and voting. What needs unanimity, a supermajority, or a simple majority (displacing s.24(7) and s.24(8)).
  6. Management roles and responsibilities. Including how you structure a sleeping partner (displacing s.24(5) for them) and the external-document conventions that contain your s.14 exposure.
  7. Admission of new partners. Process, thresholds, buy-in mechanics.
  8. Retirement, death, removal of partners. A buyout formula (commonly NAV per accounts or independent valuation), continuation on partner events (displacing s.33(1)), notice periods, and restrictive covenants on exit.
  9. Dissolution. What triggers it, the mechanics, surviving-partner buyout versus a sale of the business, and the tax impact under TCGA 1992 s.59 or s.59A and SP D12.
  10. Confidentiality, non-compete, and non-solicitation. Modifying s.30 in specific, genuinely commercial ways.
  11. Dispute resolution. Mediation, arbitration or court, which matters most in a family property partnership.
  12. Bank mandates and signing authorities. Who can commit the partnership, and to what.

If you are running an LLP, add three more: designated member identification and acknowledgment of their statutory responsibilities (LLPA 2000 ss.6 to 9 and CA 2006 ss.451 to 453 applied via SI 2008/1911); capital contributions sized for the Condition C salaried-member safe harbour where active members are exposed; and arm's-length documentation for any corporate-member profit allocation to keep your mixed-membership exposure in check.

The benefits of formalising: a positive case

Take the same Patel family, but this time as a four-member family LLP with a carefully-drafted agreement covering every key clause. The father retires.

The continuation runs on the agreement, not on the default. The father's capital plus accumulated profit share is worked out as NAV under the agreed formula and paid out over 3 years by promissory note carrying interest at 4% per annum (the rate agreed when the agreement was signed). The partnership simply continues.

The CGT position is far better, because the partnership carries on after he leaves: no immediate crystallisation under s.59A, the father's CGT attaches only to his actual fractional-share disposal value, and the surviving members keep their fractional shares at the same base costs.

On the salaried-member side, the active members' capital contributions are checked against the Condition C 25%-of-disguised-salary threshold before the retirement. The father stepping back does not disturb anyone else's Condition C status, because their capital balances stand alone, and the agreement flagged this analysis when it was signed.

There is no mixed-membership issue, because the LLP has no corporate member. The agreement still provides for advance modelling against the ss.850C to 850E excess and power-to-enjoy tests should the family bring in a FIC as a corporate member later.

Most of all, the family relationships hold. The father's exit happens on agreed terms, with no litigation and no last-minute negotiation under stress. The agreement cost roughly £5,000 to £10,000 in legal fees to put in place. Set that against tens of thousands in avoided tax consequences and a family that is still speaking to each other.

Common partnership-agreement mistakes

  1. No written agreement at all. The defaults take over, with outcomes that suit almost no property partnership where capital and management are split unevenly.
  2. A generic template pulled off the internet. Without property-specific drafting, the clauses that matter (Sch 15 alignment, salaried-member capital sizing, sleeping-partner s.14 management) simply are not there.
  3. Silent on s.33(1) continuation. The death of a partner triggers automatic dissolution.
  4. Silent on a buyout formula. An exit dispute has nothing in the contract to anchor it.
  5. An LLP agreement that creates accidental salaried-member exposure. Active members' capital contributions sit below the Condition C threshold.
  6. An LLP agreement that creates accidental mixed-membership exposure. Corporate-member allocations are not documented against the arm's-length test.
  7. An agreement that ignores s.14 holding-out exposure. A sleeping partner named on external documents picks up personal liability well beyond their internal role.

A note on terminology: "civil partnership" vs "business partnership"

"Partnership" carries two quite different statutory meanings, and it is worth not confusing them. The Civil Partnership Act 2004 sets up civil partnership as a marriage-equivalent relationship for tax-residence, IHT, CGT inter-spouse transfer and Form 17 election purposes. That has nothing to do with a business partnership under PA 1890, which is the only sense meant here. For the spousal and civil-partner joint-property mechanics under PIM1030 and Form 17, see civil partnership joint-property tax treatment.