Limited partnerships are increasingly being employed as legal entities for collective property funds. They are tax transparent so that investors with different tax status can invest alongside each other. The partnerships themselves do not pay tax and instead tax is payable by investors at their own marginal rate.
The structure lends itself well to medium and long term investment in property. Unlike quoted corporate vehicles, there is no bid / offer spread. When the partnership is wound up, there will be no discount to net asset value. They can be geared and furthermore, there is no requirement to hold a proportion of partnership assets in cash (to meet liquidity requirements). The funds would typically include a portion held in cash to pay expenses etc. Administration is simple and can be more economic than other vehicles. Balanced against this, interests in limited partnerships tend to be more illiquid than property investments owned outright. Investors are not in a position to control day-to-day operations including investment decisions and obviously the value of any investment may go down as well as up.
Set out below is a diagram outlining the structure of a typical UK limited partnership arrangement, incorporating a feeder fund.