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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Example 1: admission of a new partner


A and B carry on a business in partnership and hold equal interests in partnership assets.

The partnership’s chargeable assets include a freehold property that is included in the balance sheet at its acquisition cost of £240,000 and self-generated goodwill which is not included in the balance sheet.

The CG base costs for A and B are:

A Property £240,000 x 1/2 = £120,000 Goodwill Nil x 1/2 = Nil
B Property £240,000 x 1/2 = £120,000 Goodwill Nil x 1/2 = Nil

On the admission of C to the partnership the sharing ratios are changed to 1/3 each.

On becoming a partner C makes a capital contribution to the partnership of £50,000 which is credited to his capital account.

No consideration passes directly from Partner C to Partners A and B in respect of the acquisition of a 1/3 interest in partnership assets.


Partners A and B are treated as having made a part disposal of their interests in partnership assets because each has disposed of a 1/6 (1/2 - 1/3) interest.

Paragraph 4 of SP D12 applies to the calculation of the gain, see CG27500.

The CG computations for A and B are:

  Partner A Partner A Partner B Partner B
  Property Goodwill Property Goodwill
Disposal consideration        

based on BSV

Property £240,000 x 1/6

Goodwill nil x 1/6  












  Less acquisition costs

Property £120,000 x 1/3

Goodwill Nil x 1/3  









CG base costs to carry forward:

A Property £120,000 - £40,000 = £80,000 Goodwill Nil - Nil = Nil
B Property £120,000 - £40,000 = £80,000 Goodwill Nil - Nil = Nil
C Property £ 40,000 + £40,000 = £80,000 Goodwill Nil + Nil = Nil

C is treated as having acquired his 1/3 interest for an amount equal to the disposal consideration taken into account for A and B.

Note that the £50,000 capital introduced to the partnership by C does not feature in the CG computation as it was credited to his capital account. It was not a payment made directly or indirectly between the partners.