Chapter 24 Partnership capital gains

Question 1

24.1 Introduction

Answer 1

Where a partnership exists, we need to deal with the capital gains tax implications when an asset is disposed of or distributed to a partner.

Question 2

24.2 Section 59 TCGA 1992

Answer 2

Where 2 or more persons carry on a trader or business in partnership, tax in respect of chargeable gains accruing to them on the disposal of any partnership assets is assessed and charged on them separately. If a partnership disposes of a chargeable asset and makes a gain, the resulting gain is charged on the individual partners and not the partnership itself. Partnerships therefore do no pay capital gains tax, similar to income tax. Details of the gain must still be disclosed on the partnership tax return with details of how the gain is allocated between the partners.

Question 3

24.3 Disposals of assets by a partnership

Answer 3

Each partner is deemed to have disposed of a fractional share in the assets. Proceeds are allocated between the partners using agreed capital-sharing ratios (normally determined by partnership agreement). Where the agreement does not lay down the allocation, the proceeds of sale will be the actual destination of the capital surpluses shown in the partnership accounts.
The acquisition costs of partnership assets are allocated between partners in the same way and each partner is assessed separately on their gain.

Question 4

24.4 Distributions of assets between partners

Answer 4

Assets will commonly be passed between the partners either on the dissolution of the partnership, or where one or more of the partners leave or retire, although it can occur between continuing partners. We look at the situation where a partnership asset ceases to be owned by the partnership and is now owned wholly by an individual partner.