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HMRC internal manual

Capital Gains Manual

Partnerships: Transfer of an asset to a partnership: SP D12: Section 5

The transfer of a chargeable asset from a partner to a partnership whether by way of a capital contribution or a sale of the asset to the partnership is an occasion of a disposal for CG purposes.  The partner in question is treated as having disposed of that part of the asset in which he no longer has an interest.

For example, A, who is entitled to a 25% interest in partnership assets, transfers an asset that he owns personally to the partnership.  As a result of the transfer, A’s interest in the asset has decreased from 100% to 25%.  For CG purposes A has disposed of a 75% interest in the asset at the time of its transfer to the partnership.

Section 4 of SP D12, see CG27500, applies to changes in fractional sharing ratios in partnership assets but it does not cover the situation where an asset that is not a partnership asset is contributed or otherwise transferred to a partnership by one of its partners.

The market value rule in TCGA92/S17/S18 will apply where the transfer of the asset takes place between connected persons or where the transaction is carried out other than by way of a bargain made at arm’s length, see CG27800.  Where the market value rule does not apply the consideration to be taken into account in computing the gain or loss arising on the disposal will be a proportion, equal to the fractional interest in the asset that passes to the other partners, of the actual consideration given for the asset.  Consideration can be any form of value received in money or money’s worth, see CG14500+.  It includes, for example, a sum credited to the partner’s capital account in respect of the asset.

CG27940 contains examples of the calculation of gains or losses on the contribution of assets to partnerships.