I6.221A Partnership annuities and IHT
Where a partnership agreement provides for the payment of an annuity to a retiring partner, the annuity is simply part and parcel of the partners' overall agreement. If, viewed as a whole, the agreement can be regarded as a commercial transaction falling within IHTA 1984, s 10 (see I3.141 and I6.203). Neither the grant of the annuity, nor the making of payment thereunder, constitutes a transfer of value.
If, however, a partner subsequently assigns the benefit of his annuity, that assignment could be associated with the grant of the annuity (and so with the whole of the partnership agreement) by virtue of IHTA 1984, s 268 (associated operations — see I3.115). Therefore, if the assignment was gratuitous, the benefit of IHTA 1984, s 10 would be lost to the whole agreement and there might be a transfer of value, notably in respect of any accruer or option arrangement contained in it.
Fortunately, HMRC does not take the point where the assignee is the assignor partner's spouse1.
If an annuity to a retiring partner arises otherwise than as an obligation of the partners' overall agreement, that agreement being a transaction which has been prevented from being a transfer of value by IHTA 1984, s 10 (see I3.141–I3.148), but the retiring partner is regarded as having provided only partial consideration for it, no immediate charge arises on entering into the agreement but a charge will be imposed on part of each annuity payment.
A and B are partners