Taxation of partnership trading profits

By Tolley

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

  • Taxation of partnership trading profits
  • Profit allocation
  • Individual partners
  • LLP members
  • Corporate partners
  • Indirect partners

This guidance note explains how trading profits are assessed on partners.

For a discussion of how untaxed income, taxed income and capital gains are assessed on partners see the Taxation of untaxed income of a partnership, Taxation of taxed income of a partnership and Capital gains of a partnership guidance notes.

Partners who take out loans to purchase an interest in a partnership may obtain interest relief. Note that the partnership must be carrying on a trade or profession. If the partnership does not do so, no interest relief is available. For more detail see the Qualifying loan interest guidance note (subscription sensitive).

ITA 2007, s 398, 399
Profit allocation

Once partnership profits are calculated (see the Trading profits of a partnership guidance note), partners are free to agree amongst themselves how the profits of the partnership are to be allocated between them.

There is no requirement that the profit share reflects the contribution made by the partners. This may allow for planning opportunities. See the Allocation of partnership income guidance note.

The profit-sharing ratio should be set out in the partnership agreement or other documentation, such as minutes

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