Rebasing of interests in partnership assets held at 31 March 1982
Guidance on the rebasing rules that apply to disposals of assets or interests in assets held on 31 March 1982 is given at CG16700+.
FA2008/Sch2 introduced new rules for the calculation of gains or losses on disposals on or after 6 April 2008 of assets or interests in assets held on 31 March 1982. The changes apply to non-corporate partners, see CG27100, whose capital gains are chargeable to Capital Gains Tax.
The pre-FA 2008 rebasing rules continue to apply to corporate partners, see CG27100, whose capital gains are chargeable to Corporation Tax.
FA 2008 rules - non-corporate partners - disposals on or after 6 April 2008
For disposals on or after 6 April 2008 of assets or interests in assets held on 31 March 1982 gains or losses are computed as if the assets disposed of had been acquired at their market value on 31 March 1982. In effect allowable expenditure is “rebased” to 31 March 1982 thus dispensing with the need for the kink test and rebasing elections.
TCGA92/S35A applies where a person (“P”) disposes of an asset on or after 6 April 2008 and:
- P acquired the asset after 31 March 1982 and before 6 April 2008 under a statutory no gain/no loss provision and
- any previous disposal and acquisition of the asset after 31 March 1982 was one to which a statutory no gain/no loss provision applied and
- rebasing under TCGA92/S35(2) did not apply to the relevant disposal, that is, the disposal of the asset to P.
Where these conditions are satisfied TCGA92/S35A (2) provides that the allowable expenditure taken into account in computing a gain or loss when P disposes of the asset on or after 6 April 2008 includes the value of the asset at 31 March 1982 and the indexation allowance due for the period from 31 March 1982 to the month in which P acquired the asset or, if earlier, to April 1998. The previous approach of treating P as having owned the asset at 31 March 1982 with the appropriate consequences for indexation allowance no longer applies.
Examples of how these rules apply in relation to disposals of interests in partnership assets are given at CG28230 - CG28250.
The rules for disposals before 6 April 2008 are explained below.
Pre-FA 2008 rules - corporate partners within the charge to CT on chargeable gains and disposals before 6 April 2008 by non-corporate partners
The rebasing provisions in TCGA92/S35 and TCGA92/Sch3 apply to disposals on or after 6 April 1988 of assets or interests in assets held on 31 March 1982.
They provide that assets held at 31 March 1982 are treated as if they had been acquired at their market value on that date so that gains or losses relating to changes in value before that date are not taken into account for CG purposes. This approach is modified by the kink test which allows for a comparison of the gain or loss based on the market value of the asset on 31 March 1982 with the gain or loss based on the actual cost before 31 March 1982 charging the lower gain or allowing the lower loss. If one computation resulted in a gain and the other in a loss the disposal was treated as giving rise to neither a gain nor a loss.
A person can opt out of the kink test by electing to have gains or losses computed as if all of their assets held on 31 March 1982 had been acquired at their market value on that date (subject to certain exceptions described in CG16780).
TCGA92/S35 (7) requires separate elections to be made by a person who holds assets in more than one capacity. For example, an election made by an individual in respect of personal assets would not cover interests in partnership assets held by that individual in his or her capacity as a partner. A person who is a partner in more than one partnership may make separate elections in respect of his interests in the assets of each partnership.
The time limit for making an election as a partner runs from the date of the first relevant disposal of an interest in a partnership asset. Where a person is a partner in two or more partnerships separate time limits apply in respect of each partnership depending on when the first relevant disposal is made.
It is not necessary for all of the partners to make an election on the first relevant disposal but any partner who does not elect will not have the opportunity of making an election on any subsequent disposal.
The first relevant disposal, which starts the time limits for a rebasing election, is the first disposal, on or after 6 April 1988, of an interest in a partnership asset which the person making the disposal owned at 31 March 1982. A first relevant disposal may occur on a disposal of an asset by the partnership, see CG27350, or a disposal arising on a change in sharing ratios within the partnership, see CG27500.
Any reference to TCGA92/S35 (5) elections in this part of the guidance means elections made by a person in his capacity as a partner.
CG28140 explains HMRC’s practice where a transfer between partners of an interest in an asset that was held by a partnership on 31 March 1982 results in neither a gain nor a loss.
Examples of how these rules apply in relation to disposals of interests in partnership assets are given at CG28160 - CG27180.