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HMRC internal manual

Lloyd's Manual

Conversion: Scottish limited partnerships: capital gains

See LLM8000 onwards for more details on capital gains tax and Lloyd’s.

Syndicate capacity

The main occasion on which chargeable gains are likely to arise in connection with an SLP member of Lloyd’s is when the SLP member disposes of syndicate capacity. For capital gains tax purposes, this capacity is owned in proportionate shares by the partners. The disposal proceeds and cost of acquisition of the capacity are apportioned to the partners according to their fractional shares in the partnership in the same way as for any disposals of assets held at partnership level. The same rules are followed as for any other partnership, as set out in Statement of Practice SP/D12 and in the Capital Gains Manual (explained at CG27100+ - see LLM10000).

When individual members leave the partnership and all or part of the capacity they contributed is disposed of as a result and the proceeds allocated to them then they alone will realise a gain for CGT purposes.

Funds at Lloyd’s

As the majority of SLP members of Lloyd’s use funds made available by the individual partners to meet deposit requirements, the SLP itself is unlikely to hold any ancillary trust fund (ATF) assets at partnership level. Gains on disposals of ATF assets provided by the individual partners are assessable as chargeable gains of the partner or partners who provided the assets, and not apportioned to all the partners. See also LLM6130.

‘Transfer’ of individual underwriter’s trade to SLP

Where an individual Name transfers syndicate capacity to an SLP and its full value is credited to the individual’s capital account, it becomes a partnership asset. This is not treated as a disposal of that capacity for CGT purposes at that time (SP/D12). If the partnership disposes of all or part of the capacity concerned then the gain resulting will be allocated between the partners in the usual way.

Where an individual Name transfers syndicate capacity and makes the Lloyd’s Deposit interavailable to an SLP member of Lloyd’s, this is sometimes referred to as the individual Name transferring his trade to the SLP member. The nature of insurance business is such that outstanding obligations to policyholders cannot be transferred to another person in this way, so strictly there is no transfer of trade. See LLM6160.

This means that, for conversions before 6 April 2004, no relief was available under TCGA92/S162 to reduce gains on the transfer of assets to the SLP. However, unless the transfer of assets is otherwise than at arm’s length, no chargeable gain will arise on the transfer (see above). Similarly, losses that arose during the partner’s trade as an underwriting member of Lloyd’s cannot be carried forward and offset against future income from the partnership.

LLM6160 deals with the reliefs available where conversion takes place on or after 6 April 2004.