Commentary

B7.501 Common partnership profit sharing arrangements

Business tax
Business tax | Commentary

B7.501 Common partnership profit sharing arrangements

Business tax | Commentary

Division B7.5     Taxation of partnership income and gains

For updates affecting this Division please see Part B0 Updates

Allocation of profits between partners

B7.501 Common partnership profit sharing arrangements

Each partner (corporate or non-corporate) in a partnership is assessed to tax on his share of the partnership profits/gains. This share is determined according to the partnership profit sharing arrangements for that period1.

In other words this means that a body of persons carrying on a trade in partnership is not, for tax purposes, treated as an entity separate from the partners2. Instead, each partner is treated as carrying on a notional trade or business in respect of their share of that partnership. So the partner's share of trading profits, untaxed income, capital gains etc are taxed as if it were their own income/gains3.

Partners are free to agree amongst themselves the manner in which the profits earned by the partnership are to be allocated between them. Whatever basis is agreed, it is generally advisable for this to be set out in the partnership agreement or in other partnership minutes etc, which formally, or informally, make up or supplement the written partnership agreement. In the absence of written evidence of any agreement the partnership return is, from 2018/19, conclusive evidence as to whether a person does or does not have a share in the profits or losses of the partnership and what that share is4; see B7.524.

While in many partnerships the whole of the profit is simply divided between the partners in pre-determined percentages

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