The following Tax practice note provides comprehensive and up to date legal information covering:
This Practice Note is about the tax treatment of a general partnership formed under English law (as opposed to a limited partnership, a limited liability partnership or a partnership formed under Scottish law—for more on these other types of partnerships, see Practice Notes: Taxation of limited partnerships and Taxation of UK LLPs).
A general partnership is not taxable in its own right. Instead, the partners are taxable on their share of the partnership's profits and gains (or can claim relief for their share of its losses), whether or not the profits and gains are distributed to the partners. For this reason a partnership is sometimes referred to as being transparent for tax purposes; the legislation 'looks through' the partnership to tax the underlying partners.
If any of the partners carries on their own business (in addition to the business of the partnership), the partnership activities are treated as a separate business for tax purposes.
For the purposes of this note, and for tax legislation generally, a partner means an equity partner, who takes a share of the partnership's profit or loss rather than being paid a fixed salary (even if there is a performance-related bonus). A salaried partner is not a partner for these purposes, but an employee.
There are specific rules about the tax treatment of a partnership's capital gains. These are covered in
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