The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:
This note explains the general rules surrounding the inheritance tax (IHT) implications of being a partner in an English general partnership. Different rules may apply to Scottish partnerships, see Simon's Taxes I6.202 (subscription sensitive).
As a partnership is transparent for tax purposes, the inheritance tax rules are applied to each partner in accordance with their individual circumstances and their interest in the partnership and its assets.
For further guidance on what constitutes a partnership, see the Is there a partnership? guidance note.
The definition of a connected person is in TCGA 1992, s 286 as applied by IHTA 1984, s 270.
The transfer of an individual’s share in a partnership to a connected person is not treated as a transfer of value for IHT purposes, provided there is no gratuitous benefit passed and the transaction is one which would have been undertaken at arm’s length between unconnected persons. The same is true of a change in the partnership sharing ratio.
It is therefore necessary to consider whether the transfer would have taken place on the same terms if the individuals had been completely unconnected. In considering whether this requirement is satisfied, HMRC will consider all available evidence, including:
They also say that if there is a history of dealings between two persons as a result of which one regularly had the better of the bargain, then there may be grounds for concluding that the parties were not genuinely at arm’s length.
The transfer of an individual’s share to a connected person will
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