PM131570 - LLP: Liquidations

As per the guidance at PM313450 LLPs are taxed as companies whilst in liquidation. This means that the date on which a liquidator is appointed (or a winding-up order is made by the court, if earlier) will mark the end of an accounting period for the purposes of partnership tax returns and the commencement of a new accounting period for corporation tax.

Whilst in liquidation, TCGA1992/S59A(5) provides that chargeable gains will accrue to the LLP (in liquidation) on the disposal of any partnership assets, whereas the members will be taxable on gains accruing on the disposal of their capital interests in the LLP. The allowable acquisition cost of each member’s capital interest in the LLP is determined by reference to their capital contributions as if tax transparent treatment of the LLP had never applied.

Section 59A(6) provides that neither the commencement or cessation of tax transparency gives rise to the disposal of any assets by the LLP or any of its members. This means that entering into liquidation does not normally trigger chargeable gains and the base cost of chargeable assets held is retained. There is an exception to this rule, as stipulated by TCGA1992/S156A. Where any previous chargeable gains accruing to a member have been ‘rolled over’ (S152-153) or ‘held-over (S154) by reinvestment of the disposal proceeds into partnership assets, those gains are immediately crystallised upon tax transparent treatment of the LLP ceasing to apply, including on entering into liquidation.