Owner-Managed Businesses

Partnerships ― inheritance tax

Produced by Tolley
  • 19 Oct 2021 08:20

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

  • Partnerships ― inheritance tax
  • Transfer of partnership interest to a connected person
  • Transfer of partnership assets
  • Business property and agricultural property relief
  • Withdrawal of relief

Partnerships ― inheritance tax

This note explains the general rules surrounding the inheritance tax (IHT) implications of being a partner in an English general partnership. Different rules may apply to Scottish partnerships, see Simon's Taxes I6.201.

As a partnership is transparent for tax purposes, the inheritance tax rules are applied to each partner in accordance with their individual circumstances and their interest in the partnership and its assets.

For further guidance on what constitutes a partnership, see the Is there a partnership? guidance note.

Transfer of partnership interest to a connected person

The definition of a connected person is in TCGA 1992, s 286 as applied by IHTA 1984, s 270.

The transfer of an individual’s share in a partnership to a connected person is not treated as a transfer of value for IHT purposes, provided there is no gratuitous benefit passed and the transaction is one which would have been undertaken at arm’s length between unconnected persons. The same is true of a change in the partnership sharing ratio.

It is therefore necessary to consider whether the transfer would have taken place on the same terms if the individuals had been completely unconnected. In considering whether this requirement is satisfied, HMRC will consider all available evidence, including:

  1. whether the parties were separately advised, and

  2. whether negotiations show a sequence of offer and counter offer

They also say that if there is a history of dealings between two persons as a result of which one regularly had the better of the bargain, then there may be grounds for concluding that the parties were not genuinely at arm’s length.

The transfer of an individual’s share to a connected person will be treated as a potentially exempt transfer to the extent that there is a transfer of value which does not fall within the above. Provided the transfero

Access this article and thousands of others like it
free for 7 days with a trial of TolleyGuidance.

Think Tax.
Think Tolley.

Critical, comprehensive and up-to-date tax information


Popular Articles

Tax equalisation

IntroductionTax equalisation is widely used by multi-national companies or group moving employees from one country to another. It is not a statutory concept but is an arrangement between an employer and employee.The idea behind tax equalisation is that an employee accepting an assignment somewhere

18 Oct 2021 13:25 | Produced by Tolley Read more Read more

Statutory sick pay (SSP)

Statutory sick pay (SSP)Statutory sick pay has its origins in the Social Security and Housing Benefits Act 1982, Part 1. Various amendments have been made to this Act to give us the SSP system we now operate.Temporary changes to SSP for coronavirus (COVID-19)New legislation has been put in place in

19 Oct 2021 23:18 | Produced by Tolley in association with Vince Ashall Read more Read more

Winding up a trust

When does a trust come to an end?A trust may come to an end because it has run its course and comes to a natural end. If a trust has no assets , it ceases to exist. Alternatively, a trust ends because the trustees or beneficiaries decide to wind it up: the trustees distribute the assets by

03 Nov 2021 11:52 | Produced by Tolley Read more Read more