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HMRC internal manual

Capital Gains Manual

Example 3: payments between partners on the admission of a new partner


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

The only chargeable asset of the partnership consists of goodwill which is not included in the balance sheet.

As there were no costs of acquisition for goodwill the partners’ CG base costs are nil.


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

On joining C makes a capital contribution to the partnership of £40,000 which is credited to his capital account.

In addition he makes a direct payment of £25,000 to each of A and B for his acquisition of an interest in goodwill.

2) Five years later the partners decide to sell their business as a going concern to a third party. The disposal consideration for goodwill is £270,000.


1) Admission of C

The CG computations for the part-disposals of A and B’s interests in goodwill based on section 4 of SP D12, see CG27500, are:

  Partner A Partner B
Disposal consideration based on BSV    

Nil x 1/6 = Nil

Plus consideration from C-£25,000  







Acquisition cost

Nil x 1/3  






  Gain £25,000 £25,000



CG base costs to carry forward:



A Nil - Nil = Nil
B Nil - Nil = Nil
C £25,000 + £25,000 = £50,000



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



2) Sale of goodwill for £270,000 

Section 2 of SP D12 applies to the calculation of the gains, see CG27350:

  Partner A Partner B Partner C
Disposal consideration £270,000 x 1/3 £90,000 £90,000 £90,000
Acquisition cost  
  Gains £90,000 £90,000 £40,000



Note that:



Partner A’s gains (£25,000 + £90,000) £115,000 are equal to:

Consideration received from Partner C £25,000  
Surplus on sale £270,000 x 1/3 £90,000  



Partner B’s gains (£25,000 + £90,000) £115,000 are equal to:



Consideration received from Partner C £25,000  
Surplus on sale £270,000 x 1/3 £90,000  



Partner C’s gain of £40,000 is equal to:



Surplus on sale £270,000 x 1/3 £90,000  
Less consideration paid to A and B £50,000  



The total gains (£25,000 + £25,000 + £90,000 + £90,000 + £40,000) £270,000 are equal to the overall gain arising on the disposal of goodwill (disposal proceeds £270,000 - acquisition cost nil) £270,000.