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HMRC internal manual

Partnership Manual

HM Revenue & Customs
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Calculating the taxable profits: Partnership annuities: retired partners

As mentioned above, basic rate tax will be suffered by the retired partner at source when the annuity is paid to them. The capitalised value of the annuity payable is also treated as consideration for the disposal of the retiring partner’s fractional interest in the partnership assets. However, paragraph 8 of Statement of Practice (SP) D12 treats the capitalised value of an annuity as consideration only if it is regarded as more than a reasonable recognition of the retired partner’s past contribution of work and effort to the partnership. Detailed guidance is at CG28400. A lump sum may be payable in addition to an annuity and guidance on how this affects the application of paragraph 8 of SP D12 is at CG28420. Normally, partnerships will be careful to ensure that annuities payable to retired partners will not trigger a capital gains charge.

This manual contains general notes on the application of SP D12 at PM60200.