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HMRC internal manual

Capital Gains Manual

Limited liability partnerships: statutory rules

TCGA92/S59A (1) applies to LLPs which carry on a trade or business with a view to profit.  It provides that any dealings by a LLP are treated as dealings by its members.  Therefore, in spite of its corporate status, a LLP within TCGA92/S59A (1) is treated for CG purposes as a ‘transparent’ partnership, see CG27000, so that each member is regarded as owning a fractional interest in each of its assets and any CGT or CT on chargeable gains arising on a disposal is charged on its members separately.

SP D12, SP1/79 and SP1/89 apply as they do to any other type of partnership until the LLP ceases to be treated as a ‘transparent’ partnership under TCGA92/S59A (1), see below.

Cessation of trading

The transparency treatment ceases to apply on the permanent cessation of a LLP’s trade or business and thereafter it will be treated for CG purposes as a body corporate. TCGA92/S156A and TCGA92/S169A provide for any rolled-over gains to be recouped in these circumstances, see CG27080.

This means that TCGA92/S59A (1) will no longer apply when a LLP ceases to carry on a trade or business with a view to profit.  Such a cessation of trade may occur, for example, as a result of liquidation or an informal winding-up.   However, a temporary cessation of trade will not prevent TCGA92/S59A from continuing to apply.

Temporary cessation of trading

The treatment of a LLP as a partnership for CG purposes is not disturbed by reason of temporary periods of time during which no trade or business is carried on, TCGA92/S59A (3)(a).

For example, if a LLP ceases to carry on its trade or business and disposes of assets to raise funds to commence a new trade or business, TCGA92/S59A (1)(b) will apply to treat the disposals as having been made by its members.

Informal winding up

The members of a LLP may proceed to wind up its affairs in an orderly way without the formal appointment of a liquidator by settling outstanding liabilities and realising assets following a permanent cessation.  In such circumstances the tax transparency of the LLP will be preserved during the period in which its assets are disposed of provided the conditions in TCGA92/S59A (3)(b) are met.  These are that:

  • the LLP is not being wound up for reasons connected in whole or in part with the avoidance of tax and
  • the period of winding up following the termination of the LLP’s business is not unreasonably prolonged.

If the conditions are not met the tax transparency of the LLP may be regarded as coming to an end before the informal winding up process has been completed.  It should be noted that the transparency treatment cannot continue beyond any date on which a liquidator is formally appointed, whether or not the liquidator is charged for a period with completing any outstanding business transactions.


TCGA92/S59A (1) will cease to apply when a liquidator is appointed or, if earlier, on a winding up order by the court or on a corresponding event under the law of a country or territory outside the UK, TCGA92/S59A (4).

Effect of TCGA92/S59A (1) ceasing to apply

When TCGA92/S59A (1) ceases to apply, a LLP will be treated as a body corporate for CG purposes rather than as a partnership.  Chargeable gains arising on disposals of assets by the LLP or a liquidator will be computed as if the LLP had never been treated as a partnership.  This will not affect pre-liquidation asset disposals which remain undisturbed.

Each of the members will be treated as owning an asset in the form of a capital interest in the LLP.  The allowable acquisition cost of each member’s capital interest in the LLP will be determined by reference to their capital contributions as if the LLP had never been treated as a partnership.