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HMRC internal manual

Capital Gains Manual

Example 3: transfer of an asset to a husband and wife partnership

Facts

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

A transfers an asset which he had acquired two years earlier for £120,000 to the partnership at its current market value of £200,000. The consideration of £200,000 is credited to his capital account.

The asset is included in the balance sheet at its cost to the partnership of £200,000.

Three years later the partnership disposes of the asset for £240,000. The surplus on sale of £40,000 (£240,000 - £200,000) is credited to the partners’ capital accounts in accordance with their interests in partnership assets:

A £40,000 x 50% = £20,000
   
B £40,000 x 50% = £20,000

Disposal on transfer of asset

The transfer of the asset to the partnership is an occasion of a disposal of a 50% interest in the asset by A. However, as the partners are husband and wife TCGA92/S58 applies so that the disposal of a 50% interest in the asset by A to B is treated as having been made for a consideration that would secure neither a gain nor a loss.

The CG computation for A’s disposal of a 50% interest in the asset will be:

  Partner A
   
Disposal consideration - TCGA92/S58  
£120,000 x 50%  
£60,000  
  Less

Acquisition cost

£120,000 x 50%  

 

£60,000    
    No gain/no loss

The CG base costs of the partners are:

A £120,000 - £60,000 = £60,000
   
B £60,000

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

Disposal on sale of asset for £240,000

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

  A B
     
Disposal consideration    
£240,000x 50%  
£120,000  
£120,000  
  Less
Acquisition cost  
£60,000  
£60,000      
  Gains £60,000 £60,000