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HMRC internal manual

Enquiry Manual

HM Revenue & Customs
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Partnerships: Ownership of Property


A business of letting co-owned property may or may not amount to a partnership. In cases where the business is established as a partnership the normal partnership rules will apply. So the partnership will have to file a partnership return to which all the normal enquiry rules will apply.

If the partnership business comprises both a trading source and income from property then the income from property would be assessable using the basis periods that apply to the trading source.

If the two activities have been arranged so that there are two separate businesses and two separate partnerships, albeit between the same individuals, a separate partnership return would be required and the income from property would be assessable on a fiscal year basis.

However, joint ownership of property does not, of itself, create a partnership. There can only be a partnership if, exceptionally, the exploitation of the property constitutes the carrying on of a business jointly with a view to profit. Where the letting income is not ancillary to the trade of a partnership and the letting activity cannot be described as a business, the income arising will not be assessable as partnership income. Instead each share will be assessable as the personal income of each co-owner.

Tax Bulletin issue 25 (October 1996) sets out the way enquiries will be undertaken in cases where the letting activity does not amount to a partnership.

We have been asked to explain how we will handle enquiries under self assessment into the return of a taxpayer who receives income from co-owned property where the letting activity does not amount to a partnership. This request reflects concerns that an enquiry into one co-owner’s return might automatically lead to enquiries into the others.

Where property is owned by two or more persons, one of them (the managing co-owner) will often take responsibility for carrying out the transactions relating to the letting and the overall supervision. We wish to avoid, so far as possible, carrying out what would amount to an in depth review of the managing co-owner’s records solely through the medium of an enquiry into a passive co-owner’s return. We also wish to avoid opening enquiries routinely into each co-owner’s return in circumstances where such enquiries may be better conducted through an enquiry into the managing co-owner’s return.

Thus, where the name and address of the managing co-owner is provided in a co-owner’s return, we will normally confine our initial enquiries relating to income derived from co-owned property to the managing co-owner’s return. If it appears that the returns of the other co-owners may need to be amended to give effect to the outcome of those enquiries, separate notices of enquiry will be issued to each co-owner at that stage. TMA70/S29 will normally enable discovery assessments to be made, so far as that source is concerned, if it is too late for their self assessments to be amended or an enquiry begun.

An article in Tax Bulletin 20 (December 1995) deals with situations where, under self assessment, jointly owned property constitutes partnership income. Where a partnership exists, the profits or losses arising from let property should be included in the partnership return which may subsequently be subject to enquiry.