A new partner joins or an existing partner leaves: SP D12
The principles explained in CG27500 apply when a new partner is admitted to the partnership or an existing partner leaves.
On the admission of a new partner the fractional sharing ratios are likely to be revised to enable the new partner to acquire an interest in partnership assets. Such a re-allocation will result in a reduction in the fractional interests of one or more of the existing partners.
Any capital introduced to the partnership by a new partner which is credited to his capital or current account does not represent the cost of acquisition of his fractional interest in partnership assets nor is it consideration received by the existing partners for the reductions in their fractional interests. CG27660 explains what happens when a new partner makes payments directly to the existing partners.
CG27900 explains what happens when an incoming partner transfers an asset to a partnership.
A partner’s fractional interest in partnership assets will be reduced to nil when he leaves the partnership and there will be a corresponding increase in the fractional interests of the remaining partners.
A partner who retires from the partnership may receive an annuity on giving up his fractional interests in the assets of the partnership. The capitalised value of the annuity represents money’s worth consideration for the disposal of the retiring partner’s fractional interest in partnership assets, see CG28400, which should be added to the consideration based on the current balance sheet value of the assets, see CG27500. SP1/79 explains that in certain circumstances the capitalised value of an annuity will not be treated as disposal consideration, see CG28420.
CG27640 - CG27670 contain examples of the calculation of gains or losses on a change in partners’ fractional interests when a new partner is admitted or an existing partner leaves the partnership. The possible application of the market value rule in TCGA92/S17 and TCGA92/S18, see CG27800+, has been ignored for these purposes.