Rebasing: SP1/89: example 1: pre-FA 2008 rules: change in partnership sharing ratios - no rebasing election made by disposing partner
A and B formed a partnership on 1 January 1980 sharing assets on a 50%:50% basis.
The partnership acquired an asset for use in its business on 1 March 1980 for £100,000.
The market value of the asset on 31 March 1982 was £120,000.
Throughout the period the asset was included in the partnership balance sheet at its original cost of £100,000.
Partner A did not make a rebasing election in his capacity as a partner.
Partner B has made a rebasing election in his capacity as a partner.
1) On 1 January 2000 C was admitted as a partner and the sharing ratios were changed to A 25%:B 50%:C 25%.
No payment was made by Partner C to Partner A in consideration for the transfer of a 25% interest in the partnership asset.
2) The partnership disposed of the asset on 1 March 2004 for £660,000.
1) Change in partnership sharing ratios on 1 January 2000.
Partner A has disposed of a 25% interest in the asset to Partner C.
In accordance with paragraph 4 of SP D12 the disposal consideration will be treated as 25% of the current balance sheet value of the asset, £100,000 x 25% = £25,000.
As the disposal would result in neither a gain nor a loss SP1/89 applies to treat the transfer as a statutory no gain/no loss disposal. Therefore, rebasing does not apply in accordance with TCGA92/S35 (3)(d).
The effect of SP1/89 is that the disposal consideration under paragraph 4 SP D12 is adjusted so that after accounting for indexation allowance neither a gain nor a loss accrues.
Partner A’s CG computation for 1999/2000
|Disposal consideration 25%|
IA £30,000 x 1.047 £25,000
|Less cost £100,000 x 25%||£56,410|
CG base cost for Partner A
|Partner A||£100,000 x 50% = £50,000 - £25,000 = £25,000|
CG base cost for Partner B
The effect of the rebasing election is that Partner B’s CG base cost will be based on the market value of the asset at 31 March 1982.
|Partner B||£120,000 x 50% = £60,000|
Partner C’s acquisition cost
Partner C will be treated as having acquired his 25% interest for £56,410 on 1 January 2000, a sum equal to the disposal consideration taken into account for Partner A.
2) Disposal of the asset on 1 March 2004 for £660,000
In accordance with paragraph 2 of SP D12 the disposal consideration will be apportioned by reference to the partners’ sharing ratios:
|Partner A||£660,000 x 25% = £165,000|
|Partner B||£660,000 x 50% = £330,000|
|Partner C||£660,000 x 25% = £165,000|
Partner A’s CG computation for 2003/04
Partner A did not make a rebasing election so the kink test will apply.
|Less mv 31.03.82||£165,000|
|£30,000 x 1.047||£31,410||£31,410|
The chargeable gain before taper relief is the lower of the two gains, £103,590.
The chargeable gain after business asset taper relief is £103,590 x 25% = £25,897.
Partners B and C - CG computation for 2003/04
The effect of SP1/89 is that Partner C’s acquisition cost is adjusted under TCGA92/S55(5) and (6) to £25,000 (£56,410 - £31,410) and he is treated as having held his interest in the partnership asset on 31 March 1982.
Partner C makes a rebasing election in his capacity as a partner.
|Less mv 31.03.82||£330,000|
|£60,000/£30,000 x 1.047|
Partner B’s chargeable gain after business asset taper relief is £207,180 x 25% = £51,795.
Partner C’s chargeable gain after taper relief is £103,590 x 25% = £25,897.