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HMRC internal manual

Capital Gains Manual

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Rebasing: example 4: FA 2008 rules: change in partnership sharing ratios on or after 6 April 2008 - FA 2008 rebasing rules

Facts

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.

Disposals

1) On 1 June 2008 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 September 2009 for £660,000.

Analysis

1) Change in partnership sharing ratios on 1 June 2008 

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.

SP1/89 and the practice outlined in CG28140 in relation to disposal on or after 6 April 2008 do not apply because the transfer is not one which results in neither a gain nor a loss.

Partner A’s CG computation for 2008/09 - FA 2008 rebasing rules

Disposal consideration

Less mv 31.03.82

£120,000 x 25% £25,000

 

£30,000    
     
  Loss £5,000

CG base costs for Partners A and B - FA 2008 rebasing rules

Partner A £120,000 x 50% = £60,000 - £30,000 = £30,000
   
Partner B £120,000 x 50% = £60,000

Partner C’s acquisition cost 

Partner C will be treated as having acquired his 25% interest in the partnership asset for £25,000 on 1 June 2008, ie a sum equal to the disposal consideration taken into account for Partner A.

2) Disposal of the asset on 1 September 2009 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

CG computations for 2009/10

  A B C
       
Disposal consideration      

Less mv 31.03.82

Less cost £165,000

£30,000

  £330,000

£60,000

  £165,000

 

£25,000        
  Gains £135,000 £270,000 £140,000