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HMRC internal manual

Capital Gains Manual

Partnerships: Partners

Section 1 (1) Partnership Act 1890 defines ‘Partnership’ as ‘the relation which subsists between persons carrying on a business in common with a view of profit’.

‘Persons’ includes individuals, bodies corporate or the trustees of a settlement.

The term `sleeping partner’ is sometimes used to describe a person who takes no active part in the running of a partnership’s business but the term has no special significance for CG purposes because a sleeping partner is treated in the same way as any other partner.

The general rules in TCGA92/S59 and Statements of Practice D12, 1/79 and 1/89, see CG27000, apply to corporate partners in the same way as to non-corporate partners.  In this guidance the following terms are used to distinguish between different types of partners:

  • the term ‘individual partner’ or ‘non-corporate partner’ refers to partners whose capital gains are chargeable to Capital Gains Tax;
  • the term ‘corporate partner’ refers to partners which are companies or other corporate bodies whose capital gains, including gains arising on disposals of their interests in partnership assets, are chargeable to Corporation Tax.

A limited partner of a limited partnership whose rights and liabilities to creditors are restricted is treated in the same way as any other partner for CG purposes.

A superannuation fund which is admitted to a trading partnership as a limited partner may pay a substantial premium to the existing partners as consideration for its acquisition of an interest in the assets of the partnership.  Such a premium will represent consideration for a part-disposal of the existing partners’ fractional interests in partnership assets, see CG27500.

Further information on types of partners is at BIM72025.

Connected persons

The rules relating to partners and connected persons are at CG27800.

Husband and wife and civil partners

Any transfers of fractional interests in partnership assets between a husband and wife or between civil partners of each other who are members of the same partnership are governed by the general rules in TCGA92/S58, see CG22010. The rules apply where the husband and wife or the civil partners of each other are living together.  Such a transfer of a fractional interest in a partnership asset is treated as taking place for a consideration that produces neither a gain nor a loss to the spouse or civil partner making the disposal. In effect, the acquiring spouse or civil partner takes over the CG base cost of the disposing spouse or civil partner.