Capital gains of a partnership

This note details the capital gains tax rules for partners. For the tax on partnership profits, rather than gains, see the Trading profits of a partnership guidance note.

This note assumes a general knowledge of capital gains tax for individuals and companies. For detailed guidance on capital gains tax for individuals, see the Introduction to capital gains tax guidance note (subscription sensitive). For companies, see the Corporate chargeable gains guidance note (subscription sensitive).

See also Simon’s Taxes B7.406 onwards (subscription sensitive).

This note does not consider the tax position of foreign partners or of partnerships controlled abroad; see Simon’s Taxes B7.515 (subscription sensitive) for this detail.

Once it is established that an asset is a partnership asset (see the Capital allowances guidance note), the partners are free to agree amongst themselves how the gains on the partnership asset are to be allocated.

There is no requirement that gains should be allocated in the same proportion as profits, or that the allocation should reflect the contributions made by the partners.

The ratio in which gains are allocated should be set out in the partnership agreement or in other documentation, such as minutes of partnership meetings. Failing that, the partnership accounts can be used to demonstrate the ratios. If there is no written agreement or other evidence, the default position is that the assets should be treated as held by the partners in equal proportions.

Each partner is treated as owning a fractional interest in the partnership assets. The value of a partner’s share in a partnership asset is his percentage share of the total asset. There is no discount or premium to reflect a majority or minority holding, but rather a simple division. See Example 1.