B7.525 Partnership mergers
As partners are taxed individually on their partnership profits, the partnership itself is not treated as discontinuing following a change in partners if at least one partner carries on the business both immediately before and immediately after the change, and the partnership carries on the same business both before and after the change1. However, where there is a complete change in the ownership of the partnership's business that business is treated as having ceased and recommenced.
In either situation, the partners will be assessed under the commencement and cessation rules as normal; see B7.510.
More complex tax and commercial issues arise however if a partnership merges or demerges, as discussed below.
In some regards, a merger can be looked on as little more than the introduction of new partners into an existing partnership. However, it is necessary to consider the effect of the merger on the partners of both partnerships and not simply the one which might be regarded as predominant.
HMRC guidance discusses three possible outcomes when partnerships merge2:
• the cessation of both partnerships and the commencement of one new partnership
• the continuation of both partnerships, albeit possibly under the name and style of just one
• the continuation of one business, but the cessation of the other
There are also capital gains implications which need to be considered for all scenarios; see 'Capital gains implications on partnership merger/demerger' below.
In some situations partnerships may claim that a demerger has taken place. HMRC will