B7.408 Changes in partnership sharing ratios
The calculation/computation of gains that are attributable to a partner are triggered not only on a disposal of a partnership asset (B7.406), but also when there is a change in partnership sharing ratio (see 'Variation of existing partnership sharing ratios' below). In general such computations will be a no gain/no loss transaction as the deemed consideration will be equal to the base cost.
However there is likely to be a chargeable gain/loss where there is a change in ratio and a:
• revaluation of an asset in the partnership accounts; see 'Asset revalued in accounts' below
• direct payment, not reflected in the partnership accounts, is made between two partners; see 'Payments outside the accounts' below
Variation of existing partnership sharing ratios
A partner is treated as having disposed of all or part of his share of the partnership assets if the profit sharing ratios are varied such that he has a smaller interest. This might arise, for example, on the retirement of an existing partner, a general change in asset sharing ratios for existing partners, the introduction of a new partner and so on.
F and G are in partnership and share in capital profits equally. The only chargeable asset owned by the partnership is a long lease which cost £150,000. On 1 July 2016 they admit a new partner H, following which the sharing ratios become F 40%, G 40%, H 20%. On 1 July 2018 the ratios are varied to F
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