ACCA ATX ^UK Syllabus A2. Chargeable gains - Partnership Disposals - Notes ^{6 / 6}

Disposal of a partnership asset to a third party

Each partner is deemed to own a fractional share of the partnership assets. 

This is based on the agreed capital profit sharing ratio in the partnership agreement.

• On disposal of a partnership asset to a third party, a capital gain should be calculated normally, then this gain is distributed to each partner based on the profit sharing ratio. 

  Each partner should include their share of the gain in their own capital gains computation.

Illustration

In January 2011, Paul and Phil commenced a partnership. 

They introduced capital into the business of £30,000 and £20,000 respectively and agreed to share profits 60%:40%. 

The partnership purchased a freehold premises for £125,000 in January 2011. 

In September 2024 the partnership sold the premises for £495,000 and continued to trade in a rented premises. 

What are the chargeable gains arising on Paul and Phil in 2024/25 in respect of the partnership disposal?

• Solution

  Sale proceeds £495,000
  Cost (£125,000)
  Capital gain £370,000

  Paul Capital Gain:  £370,000 * 60% = £222,000

  Phil Capital Gain:  £370,000 * 40% = £148,000