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HMRC internal manual

Capital Gains Manual

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Rebasing: changes in partnership sharing ratios: SP1/89

Statement of Practice 1/89 (SP1/89) part of which is reproduced below explains how rebasing applies on disposals of interests in partnership assets:

The Commissioners for HMRC have agreed that a disposal of a share of partnership assets to which paragraph 4 of the Statement of Practice D12 applies so that neither a chargeable gain nor an allowable loss accrues (before indexation, for disposals before 6 April 1988), may be treated for the purposes of TCGA92/S35 and TCGA92/Sch3 as if it were a no gain/no loss disposal within TCGA92/Sch3 para 1.

The effect of SP1/89 is to treat a transfer of an interest in a partnership asset between partners that results in neither a gain nor a loss, see CG27500 and the example at CG27540, as a statutory no gain/no loss transfer for the purposes of the rebasing rules in TCGA92/S35/S36 and TCGA92/Sch4, see CG16880+. Partners who dispose of interests in assets that were acquired by them as a result of such a transfer are treated as having held them on 31 March 1982.

SP1/89 provides that the disposal consideration for a transfer between partners of an interest in a partnership asset that results in neither a gain nor a loss may be calculated on the assumption that an unindexed gain will accrue to the transferor equal to the indexation allowance so that, after accounting for indexation allowance, neither a gain nor a loss accrues. Such a disposal may be treated as a statutory no gain/no loss disposal for the purposes of TCGA92/S55 (5).

For CGT purposes indexation allowance was frozen as at April 1998 and has been abolished for disposals on or after 6 April 2008.

For disposals of interests in partnership assets that occur on or after 6 April 2008 SP1/89 will apply only in relation to corporate partners whose capital gains are chargeable to corporation tax.

Non-corporate partners - transfers on or after 6 April 2008

HMRC’s practice in relation to rebasing for disposals on or after 6 April 2008 (published on 20 March 2009 in Revenue & Customs Brief 09/09) is consistent with the previous treatment under SP1/89. Transfers between partners of interests in partnership assets after 31 March 1982 and before 6 April 2008 that resulted in neither gains nor losses may be treated as statutory no gain/no loss transfers for the purposes of TCGA92/S35A (1)(b).

Where TCGA92/S35A (2) applies in relation to disposals by non-corporate partners on or after 6 April 2008 the allowable expenditure to be taken into consideration in the calculation of a gain or loss includes the value of the asset at 31 March 1982 and any indexation allowance for the period from 31 March 1982 to the month in which the person making the disposal acquired it or, if earlier, to April 1998.

Examples of the effect of SP1/89 in relation to disposals of interests in partnership assets before and on or after 6 April 2008 are given at CG28160 - CG28250.