Commentary

B7.510 Calculation of general partner's tax liability

Business tax
Business tax | Commentary

B7.510 Calculation of general partner's tax liability

Business tax | Commentary

B7.510 Calculation of general partner's tax liability

Partnership profits/losses are assessed on the partner alone in accordance with the agreed profit share arrangements. Different rules apply for corporate, non-corporate and indirect partners as discussed below.

Individual partners—Income tax assessments

To assess partnership profits on partners subject to income tax, special rules apply depending upon the source of income as summarised below.

  1.  

    •     Trading profits are assessed on each partner as if he were carrying on a notional trade in relation to his share of partnership trading profits1. This means that:

    1.  

      –     for a continuing trade, trading profits arising in the 12 month accounting period ending in the relevant tax year are taxed on the partner as profits of that tax year; see B8.101

    2.  

      –     on the commencement/cessation of trade (ie when a partner starts to trade in partnership, joins an existing partnership, retires from a partnership or carries on the trade, that was previously done in partnership, as a sole trader or there is a change in accounting date) the special opening and closing year rules apply to ensure that profits are not charged twice or drop out of charge; see B8.102–B8.105

  2.  

    •     Untaxed income of the partnership is assessed on each partner as if he were carrying on a second notional trade in relation to his share of the partnership untaxed income. This means that untaxed income arising in an accounting period is assessed on the partner on the same basis as for trading profits. There is no cessation/recommencement even

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