This Practice Note is about the tax treatment of general partnerships. Such a partnership is not taxable in its own right. Instead, its partners are taxed on their share of the partnership's profits and gains (and 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 general partnership is sometimes referred to as being transparent for tax purposes or ‘tax transparent’. In summary, the taxation of a general partnership involves three stages: • ascertaining the taxable profits of the partnership • determining each partner’s share of that taxable profit in accordance with the partnership’s profit sharing arrangements, and • assessing to corporation tax or income tax each partner’s share of the partnership’s profits For the purposes of this Practice Note, and for tax legislation generally, a partner means an equity partner, who is entitled to a share of the partnership's profit or loss rather than being paid a fixed salary. A salaried partner is therefore not a partner for these purposes,

This Practice Note is about the tax treatment of limited partnerships. In most respects, the tax treatment of limited partnerships follows that of general partnerships (for which, see Practice Note: Taxation of general partnerships). In particular, a limited partnership is ‘tax transparent’, ie it is not taxable in its own right. Instead, its partners are taxed on their share of the partnership's profits and gains (and can claim relief for their share of its losses), whether or not the profits and gains are distributed to the partners. There are, however, some tax provisions that are specific to limited partners (and sometimes to partners in a general partnership who act as though they were limited partners) which are discussed in this Practice Note. Note that the rules governing the use of losses by a limited partner are described in Practice Note: Partnership losses. For information on the use of limited partnerships as vehicles for holding real estate, see Practice Note: Property holding structures—direct tax treatment of a UK limited partnership and for background information on limited partnerships

This Practice Note has been archived and is not maintained. Abolition of the remittance basis and introduction of a residence-based IHT regime from 6 April 2025 Finance Act 2025 (FA 2025) which received Royal Assent on 20 March 2025, implements legislation to abolish the remittance basis of taxation and replace it with a residence-based regime, commencing on 6 April 2025. FA 2025 also replaces domicile as the key factor in establishing liability to inheritance tax. Other changes include amendment of the rules determining excluded property status, the abolition of protected settlements status of offshore trusts, and changes to overseas workday relief. For information on these changes, see Practice Notes: The abolition of the remittance basis of taxation from 2025–26 and A new residence-based regime for IHT from 2025–26. Significance of settlor’s domicile for offshore trusts The extent of a trust’s liability to UK income tax and capital gains tax (CGT) depends on the residence status of its trustees. Non-resident trusts can, in certain circumstances, shelter

Restrictive covenants or undertakings These are undertakings given by employees during employment or on termination which restrict their conduct or activities. Due to historic debate as to whether payments given for such restrictive covenants or undertakings fell within general earnings under the relevant income tax acts, there is a specific charging provision which ensures that such payments made in connection with current, future or past employments or offices are taxable as earnings. Tax treatment Section 225 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) taxes payments made to an individual for entering into restrictive covenants. In order for consideration to be brought into charge, the following conditions must be satisfied by the individual: • a restrictive undertaking is given in connection with a current, future or past office or employment • the undertaking must restrict conduct or activities; it may be absolute or qualified and need not be legally binding • a payment is made in respect of the giving of the undertaking or its partial

The tax treatment of payments in lieu of notice (PILONs) fundamentally changed under the amendments to sections 402–404 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) which became effective from 6 April 2018. In broad terms, the amendments mean all PILONs, whether paid pursuant to an (implied or express) contractual PILON provision or not, are fully taxable and subject to both employee and employer National Insurance contributions (NICs). This is achieved by an employer being required to carry out a post-employment notice pay (PENP) calculation. As set out below, this calculation is necessary to allow employers to identify which element of a termination payment is taxable. As a result, the pre-2018 distinction between PILONs which were paid pursuant to an (express or implied) contractual PILON provision (which were treated as fully taxable) and those which were not paid pursuant to a contractual PILON provision (which were capable of benefiting from the £30,000 tax exemption and which were entirely free from

ARCHIVED: This Archived Practice Note outlines the pre-6 April 2018 tax treatment of payments in lieu of notice. For the tax treatment applicable to such payments where the employment is terminated on or after 6 April 2018, see Practice Note: Taxation of payments in lieu of notice (PILONs) and post-employment notice pay (PENP). Historically, a particularly complex area is that of the tax (and National Insurance contributions (NICs)) treatment of payments in lieu of notice (PILONs). These are payments made in the place of payments due for the employee or director’s period of notice. As a result of the complexity and confusion, the tax treatment of PILONs fundamentally changed from 6 April 2018. In broad terms, all PILONs, whether paid pursuant to an (implied or express) contractual PILON provision or not, are, from 6 April 2018, fully taxable and subject to employer's NICs. The pre-6 April 2018 position

This glossary explains the meanings of some common terms that are used in the private equity and venture capital industry. This may prove helpful when looking at the tax issues arising in this area. For the tax issues arising in the private equity context, see: • Tax and private equity funds—overview • Tax and management buyouts—overview • Tax and secondary buyouts—overview acquisition The process of acquiring an ownership interest in a target company, usually ending up with 50% or more of the target company being taken over acquisition finance External finance obtained to fund an acquisition. This can take the form of bank debt, loans and/or equity (such as a share issue) buy-in management buyout (BIMBO) A buyout that results in a mixture of new and existing management personnel. A group of the incumbent management team will acquire enough share capital in the business to ‘buy out’ the company from within and, at the same time, an outside team of managers will ‘buy in’ to the company. Both

FORTHCOMING CHANGE relating to the modernisation of stamp taxes on shares framework: Stamp duty and SDRT will, in 2027, be replaced with a single, self-assessed tax on transfers of securities, the securities transfer tax (STT) (formerly referred to as the securities transfer charge or STC), that will be paid (and reported) through electronic transfer systems such as CREST or, where appropriate, a new online portal. Draft legislation for the STT was published on 13 July 2026, along with explanatory notes, a policy paper and the outcome of the higher rate 1.5% stamp tax consultation. Subject to exemptions, the STT draft legislation includes a main charge of 0.5% for agreements to transfer chargeable securities to another person for consideration in money or money’s worth and, for transfers to a clearance service (CS) or depositary receipt issuer (DRI), a higher-rate charge of 1.5%. The main charge arises when an agreement is made or, in the case of a conditional agreement, when the conditions are satisfied, although,

Redundancy is one of five ways in which an employment contract may be terminated unilaterally by an employer where such termination will be potentially a fair dismissal. The other four potentially fair reasons for dismissal are: • the employee is not capable of performing the job • the employee’s conduct is incompatible with continued employment • the employee cannot continue in the job without contravention of a legal restriction, or • the residual category of ‘some other substantial reason’ Section 309 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) provides that ‘no liability to income tax in respect of employment income other than earnings arises by virtue of a redundancy payment or an approved contractual payment, except where it does so by virtue of Chapter 3 of Part 6 (payments and benefits on termination of employment etc)’. In other words, statutory redundancy payments, and contractual payments made under section 157 of the Employment Rights Act 1996 (ERA 1996) (where trade unions and employers agree that a contractual scheme

Where an employee has potential claims against the employer under the Employment Rights Act 1996 (ERA 1996) or other employment legislation, or where the employee would otherwise have a claim for breach of contract, a settlement agreement can be entered into by the employee and employer to end the employment on the terms set out in that agreement (though there are a few instances under employment law when claims cannot be ended with a settlement agreement). Key managers/shareholders may also sign settlement agreements if they leave employment when the employing company is sold. For a precedent settlement agreement (and drafting notes), see Precedents: Settlement agreement (employment) or Settlement agreement (employment) (short form). By entering into a settlement agreement, the employer has certainty that the employee will have no claim in the future against the employer. Among other things, the settlement agreement will deal with all payments and benefits owing or agreed to be paid to the employee. While the settlement agreement is signed on termination, not all payments and benefits

This Practice Note considers the income tax and National Insurance contributions (NICs) treatment of payments of tips and commission, being varieties of payment that employees may receive in addition to their regular wage or salary payments. This Practice Note sets out relevant issues when tips are paid directly to employees, when they are paid to employers and when they are distributed under a tronc system. The Employment (Allocation of Tips) Act 2023 (E(AT)A 2023) creates a legal obligation on employers across sectors to allocate all tips, gratuities and service charges which they are paid, or over which they exercise control or significant influence (qualifying tips), to workers without any deductions, and to ensure that the allocation is fair and transparent. E(AT)A 2023 does not interfere with the law concerning the taxation of tips, gratuities and service charges but aims to ensure that any such payments made by customers are allocated to workers. E(AT)A 2023 is supplemented by a statutory Code of Practice on Fair and Transparent Distribution of Tips and non-statutory guidance. For more information on the legal framework surrounding

Once a company has established that it has a trade (for which see Practice Note: What is a trade for tax purposes?), it is required to calculate the profits of its trade or trades for corporation tax purposes in accordance with generally accepted accounting practice, but subject to: • removing any receipt or deduction that is of a capital nature • removing any deduction for an expense that was not incurred wholly and exclusively for the purposes of the trade (WEPT)—ie removing those expenses that are not WEPT expenses, and • making adjustments for specific items that are identified by statute as being, or not being, a receipt or deduction of the trade for tax purposes For complementary information on the basis and calculation of corporation tax applicable more generally, see Practice Notes: What is the basis of corporation tax? and Basis of calculation of corporation tax. The basic principles for calculating trading profits A company is required to calculate the profits of its trade or trades for corporation tax purposes in accordance