Example 1: Change in partners’ fractional sharing ratios
A and B carry on a business in partnership and hold equal interests in partnership assets.
The partnership’s assets include a freehold property that is included in the balance sheet at its acquisition cost of £500,000.
The CG base costs for A and B are:
|A||£500,000 x 50% = £250,000|
|B||£500,000 x 50% = £250,000|
The partners subsequently agree to change their interests in the property to:
No consideration passes from B to A for the acquisition of a further 10% interest in the property.
Paragraph 4 of SP D12 applies to the calculation of the gain, see CG27500.
A is treated as having made a part disposal of his interest in the property.
The CG computation for A’s disposal of a 10% interest in the property will be:
|Disposal consideration based on balance sheet value (BSV)|
|£500,000 x 10%|
|£250,000 x 10%/50%|
|No gain/no loss|
CG base costs to carry forward:
|A||£250,000 - £50,000 = £200,000|
|B||£250,000 + £50,000 = £300,000|
Note that B is treated as having acquired his additional 10% interest for an amount equal to the disposal consideration taken into account for A.