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HMRC internal manual

Corporate Finance Manual

Other tax rules on corporate debt: transfers of income streams: company transferors: transfers to or by a partnership of which a company is a member

Company transferors: transfer to or by a partnership of which a company is a member

A transfer of a right to income to or by a partnership of which a company is a member is specifically treated as a transfer to which the transfer of income streams provisions apply - see CTA10/S757(4). A transfer to a partnership of which the company was not a partner would be a transfer to which the legislation could apply without specific provision.

Example 1

W Ltd is a member of a partnership. The partnership has an existing obligation to pay £10m in respect of a purchase of an asset to be used in its business. In discharge of the debt, it assigns to the vendor a right to payments from a long term contract which have not yet been recorded as trade receipts.

If the income is not otherwise charged to tax then W Ltd will be charged as if it has disposed of its share of relevant receipts for its share of the £10m consideration received by the partnership. On the assumption that this is not recognised otherwise according to GAAP, it is treated as arising on the date of transfer.

Example 2

On another occasion W Ltd sells an income stream of £5m to the partnership for its present value of £4.5m. Apart from the transfer the income would have been brought into account for the purpose of computing the company’s profits for tax purposes over the next 5 years. The company has a fixed 20 percent share in the partnership for the next 5 years.

Step 1: what is the amount of the relevant receipts?

The £5m income will be taken into account in computing the partnership profits over the next 5 years. 20 percent will be allocated to the company as part of its profit share. The relevant receipts are therefore £4m.

Step 2: what is the consideration for the relevant receipts?

80 percent of the total consideration (that is, £3.6m) relates to the relevant receipts. This amount is taken into account in accordance with S753(3)(a) or (4) as applicable.

If at the time of transfer, arrangements are in place that mean that it is not clear that the income will in fact be brought into account as part of the profit share, then all of the transferred receipts will be relevant receipts.