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HMRC internal manual

Capital Gains Manual

Example 1: transfer of an asset at market value


A and B carry on a business in partnership.

Their interests in partnership assets are shared as to:

Partner A 75%
Partner B 25%

Partner A transfers an asset which he acquired five years earlier for £320,000 to the partnership at its current market value of £400,000. The consideration of £400,000 is credited to his capital account.

The asset is included in the balance sheet at its cost to the partnership of £400,000.

Four years later the partnership disposes of the asset for £600,000.

Disposal on transfer of asset

Partner A has disposed of a 25% interest in the asset on its transfer to the partnership as he has retained a 75% share by virtue of his interest in the assets of the partnership.

The CG computation for Partner A’s disposal of a 25% interest in the asset will be:

  Partner A
Disposal consideration  
£400,000 x 25% £100,000

Acquisition cost

£320,000 x       £100,000                                             £100,000 + £300,000

TCGA92/S42 (2)  


£ 80,000

  Gain £20,000

In effect, Partner A realised a profit of £80,000 (£400,000 - £320,000) on the transfer of the asset to the partnership. However, because he retained a 75% interest in the asset, the gain accruing at the time of the transfer is the proportion attributable to the interest that passed to Partner B (£80,000 x 25% = £20,000).

The CG base costs of the partners are:

Partner A £320,000 - £80,000 = £240,000
Partner B £100,000

Partner A’s CG base cost is based on his original cost of acquisition and Partner B’s CG base cost is equivalent to the disposal consideration taken into account for Partner A.

Disposal on sale of asset for £600,000

Paragraph 2 of SP D12 applies to the calculation of the gains arising on the disposal of the asset, see CG27350.

  Partner A Partner B
Disposal consideration    

£600,000 x 75%

£600,000 x 25%  




Acquisition cost  
  Gains £210,000 £50,000

Partner A’s gain of £210,000 is equal to the remainder of the profit realised on the transfer of the asset to the partnership plus his share of the surplus on sale, (£80,000 x 75%) £60,000 + £150,000 = £210,000.

Partner B’s gain of £50,000 is equal to his share of the surplus on sale, £200,000 x 25% = £50,000.