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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

HM Revenue & Customs
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Remittance Basis: Identifying Remittances: Specific Topics: Partnerships

For detailed information about partnerships, and the taxation of profits arising to partnerships refer to the Business Income Manual (BIM 72000+).

Investment into partnerships

When a partner makes a capital contribution to a partnership they acquire an asset under partnership law, namely an ‘interest’ or ‘share’ in the partnership which gives them rights to share in future profits and distributions (of their capital and any surplus) on dissolution of the partnership.

It follows that a remittance basis user who uses his foreign income or gains to make a capital contribution to a UK partnership acquires a UK asset; namely a share in the UK partnership, in exchange for his ‘equity’ subscription in the partnership. Thus the foreign income or gains that he uses to contribute to the partnership will be a taxable remittance within ITA07/s809L.

This is so even if the individual places his investment into the partnership’s overseas account, and the UK partnership is only investing or trading overseas and not in the UK.

Offshore partnerships trading or investing in the UK

A partnership is not a relevant person RDRM33030. Individuals who are partners together in a partnership are not relevant persons by virtue of their role as a partner (although they may, of course, be relevant persons under other provisions).

Offshore partnerships, whether trading or investment partnerships, may bring partnership funds into the UK to meet trading or investment expenses in the usual course of partnership business. As the funds are brought in by the partnership they are not brought in by a relevant person. In most cases there will be no benefit to a relevant person from the money or other property brought into the UK by the partnership, nor will a service usually be provided in the UK to or for the benefit of a relevant person, so Condition A of ITA07/s809L is not met. Thus there will be no taxable remittance.

In cases where there does appear to be a benefit to an individual partner (or to another relevant person) from money or other property brought into UK by the partnership, or from a service provided in the UK for which the partnership gives consideration then you should examine the transaction and the partnership documents very carefully to identify the source of the partnership funds.

The provision of the property or service by the partnership may be a remittance of that individual’s ‘share’ in partnership profit. To the extent that the individual’s share in partnership profit falls to be regarded as relevant foreign income (see below) there may be a remittance.

You may also need to examine whether there is a true partnership, or whether in fact it is the individual’s foreign income or gains that have been remitted. Alternatively there may be a connected operation to which Condition D of ITA07/s809L(5) applies. Further advice should be sought from Specialist Personal Tax, PTI Advisory, Foreign Income and Remittance Basis Team.

if either of these possibilities arises.

Partner’s share of partnership profit treated as relevant foreign income.

Under ITTOIA05/s857, if a partner is a remittance basis user then his share of the profits of the partnership’s trade arising outside of the UK is treated as relevant foreign income RDRM31140. However this only applies where:

  • the partnership firm carries on a trade wholly or partly outside of the UK, and
  • control and management of the trade is outside of the UK

Consequently the remittance basis may apply to that partner’s share of partnership income only.

This applies also to partnership businesses that are not trades or professions (ITTOIA05/847(2)(b)). References above to profits of a trade should be read as references to the income arising from a business.