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HMRC internal manual

Business Income Manual

Computing the amount to assess: Partnerships - loss relief restrictions: cost of contribution reimbursed to partner

Reg5 Partnerships (Restrictions on Contributions to a Trade) Regulations 2005, SI 2005 No 2017

A contribution is excluded from counting as a capital contribution for the purposes of the restrictions on sideways loss reliefs (see BIM82601) where the cost of making it:

  • is not financed by a loan, but
  • is or may be subsequently reimbursed to the partner by someone else.

The contribution is excluded when, and to the extent that:

  • there is at any time an agreement or arrangement under which any part of the financial cost of making the contribution will or may be reimbursed, directly or indirectly, to the partner by another person, or
  • in cases where there is no pre-existing agreement or arrangement, at the time that any part of the financial cost of making the contribution is directly or indirectly reimbursed to the partner by another person.

In all cases, ‘another person’ can be a partnership, and includes the partnership to which the contribution is made and of which the individual is a partner.

A particular form of scheme caught by this (to the extent that it not already caught by restrictions under primary legislation) is one where a partner has a right to receive a particular amount on the winding up of a partnership, or the sale of their partnership interest, irrespective of the success of the partnership.