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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Partnership annuities and lump sums: SP1/79

The rules set out in CG28400 apply to annuities paid by a partnership to a retired partner.

Statement of Practice 1/79 (SP1/79) applies where a lump sum is paid in addition to an annuity.

Statement of Practice 1/79

The text of SP1/79 is reproduced below:

Paragraph 8 of SP D12 explains the circumstances in which the capitalised value of an annuity paid by a partnership to a retired partner will not be treated as consideration for the disposal of his share in the partnership assets. The Commissioners for HMRC have now agreed that this practice will be extended to certain cases in which a lump sum is paid in addition to an annuity. Where the aggregate of the annuity and one-ninth of the lump sum does not exceed the appropriate fraction (as indicated in the Statement) of the retired partner’s average share of the profits, the capitalised value of the annuity will not be treated as consideration in the hands of the retired partner. The lump sum, however, will continue to be so treated.

This extension of the practice will be applied to all cases in which the liability has not been finally determined at the date of this Notice.

This means that where a lump sum is paid to a retiring partner in addition to an annuity:

  • the capitalised value of the annuity should not be treated as additional consideration for the disposal of the partner’s fractional interest in partnership assets provided that the aggregate of the capitalised value of the annuity and 1/9th of the lump sum does not exceed the appropriate fraction set out in CG28400

but

  • the lump sum should be treated as consideration for the disposal of the retiring partner’s fractional interest in partnership assets.