Owner-Managed Businesses

Admitting a new partner

Produced by Tolley
  • 25 Oct 2021 07:03

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Admitting a new partner
  • Introduction
  • When does a partner join a partnership?
  • The tax position: background
  • A new partner joins an existing partnership
  • Trading income
  • Untaxed income
  • Taxed income
  • A sole trader takes someone into partnership

Admitting a new partner


This note explains the tax rules that apply when a new partner is admitted to a partnership. For the position when a partner leaves the partnership, see the Retirement of a partner guidance note. A partner joining or leaving a firm can have an effect on the capital allowances or capital gains position, see further the Capital allowances - partnership changes and Capital gains of a partnership guidance notes.

For the rules which apply when the partners stay the same, but there is a change in the profit sharing ratios, see the Allocation of partnership income guidance note.

When does a partner join a partnership?

A partnership exists if two or more persons are doing business in common and sharing profits and losses, see the Is there a partnership? guidance note. No formal document is required. However, it is strongly recommended that the admission of the new partner is recorded by way of an appropriate legal agreement.

If the agreement states that the partner has been admitted to the partnership before the date of the document, this is not legally effective unless, as a question of fact, the partnership previously existed, so that the agreement is merely recording the reality. This point has been addressed in the courts as in the Waddington case – this a

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