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|
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.