Partnership disposal of chargeable assets

Tax year 6 April 2012 to 5 April 2013

SA803 Notes 2013 Page PAN 1 HMRC 12/12

ContentsFilling in the Partnership disposal of chargeable assets pages PAN 1

An introduction to Capital Gains Tax PAN1

Chargeableassets PAN2

Whatisachargeablegain? PAN2

Exemptassets PAN2

Information about disposals PAN2

Disposals PAN2

Buildingsocietymergers,conversionsandtakeovers PAN3

Sharereorganisations,companyreconstructionsandtakeovers PAN3

Whatisthedateofdisposal? PAN3

Whatarethedisposalproceeds? PAN3

Whatismeantby‘marketvalue’and‘connectedpersons’? PAN4

Filling in pages PA 1 and PA 2 PAN5

DefinitionofquotedsharesorothersecuritiesforthePartnership disposal of chargeable assetspages PAN6

Transfer of information to the Partnership Statement (full) PAN 6

Helpsheets PAN7

Filling in the Partnership disposal of chargeable assets pagesGathertogetherthematerialyouneed,suchas:•contractsforthepurchaseandsaleofassets•invoicesforallowableexpenditure.

Youmustcompletethesepagesifthepartnershipdisposedofanychargeableassetsin2012–13.YoushouldalsocompletethesepagesifthepartnershipcarriesonitsbusinessasaLimitedLiabilityPartnershipandhasdisposedofanychargeableassetsintheperiod.Ifthepartnershipisa‘CTPartnership’seepagePTRG4ofthePartnershipTaxReturnGuide.

Youmayneedtoprovideeachpartnerwithadditionalinformation,forexample,theincidentalcostsofbuyingorsellinganasset,sothattheycancalculatetheirownchargeablegains.YoucanfinddetailsoftheinformationthepartnersmayneedwhenfillingintheirowntaxreturnsintheCapitalGainsTaxnotesandhelpsheetsforthepersonaltaxreturn.Togetcopiesgotohmrc.gov.uk/selfassessmentforms

An introduction to Capital Gains TaxThesenotesareasimplifiedsummaryoftheCapitalGainsTaxlawasitappliesinsomecommoncases.Ifyouareinanydoubtabouttheirrelevancetoyourpartnership,askusoryourtaxadviser.

A Need help?Go to our website at

hmrc.gov.uk

Phone

The number printed on your tax returnSA Helpline

0845 9000 444SA Orderline

0845 9000 404

A These notes will help you to complete the Partnership disposal of chargeable assets pages of your Partnership Tax Return.

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Chargeable assetsAnyformofproperty,whereveritissituated,maybeachargeableasset.Themostcommonassetsinclude:•stocks,sharesandunitsinunittrusts•landandbuildings•businessassetssuchasgoodwill.

SomeassetsareexemptfromCapitalGainsTaxbutmostoftheseexemptionsareunlikelytoapplytopartnershipassets.Ifyouareinanydoubt,askusoryourtaxadviser.

What is a chargeable gain?Achargeablegainismadewhensomethingapersonowns(anasset):•iswhollyorpartlydisposedof(ortreatedas

disposedof),and•itsvaluehasincreasedsinceitwasacquired,or

since31March1982ifthatislater,or•asaresultofaclaimtorelief,theiracquisition

costshavebeenreducedandtheproceedsofdisposalaregreaterthanthisreducedamount.

Wemayalsotreatapersonasmakingagaininothercircumstances,forexample,where:•againonanearlierdisposalofanassethasbeen

deferredandthedeferralperiodhascometoanend,or

•thevalueofanassethasincreasedbyatransferofrights,orbyanyothermeansthatwouldnotbyitselfberegardedasadisposal,or

•awastingassetisdisposedofthathasnotdiminishedinvalueasquicklyaswasexpected,or

•acapitalsumisderivedfromownershipofanasset,forexample,compensationfordamageoraninsurancereceipt.

Wewillnormallytreateachofthemembersofthepartnershipasowningaproportionateinterestinthepartnership’sassets.Whenanassetisdisposedof,eachpartnermaymakeachargeablegainonthedisposaloftheirinterestinthatasset.Butthegainsmadebyeachpartnermayvary;forexample,becauseonepartnerisentitledtoasmallerorlargerinterestintheassetthantheotherpartnersorbecauseonepartnerhasbeenentitledtoaninterestintheassetforashorterorlongerperiodthantheotherpartners.

Becausethegainsarechargeableonthepartnersratherthanthepartnership,thereisnosuchthingasa‘partnershipchargeablegain’.Therefore,youarerequiredsimplytomakeareturnoftheinformationincludedinapartnershipaccount

fortheperiodfrom6April2012to5April2013,namelytheproceedsfromanydisposalsofpartnershipassets.

Exempt assetsExemptionsthatmightapplytothepartnershipassetsinclude:•motorcars•UKGovernmentstocks(gilts)andcertain

corporatebonds•lifeassurancepoliciesanddeferredannuity

contracts,unlessatanytimeacquiredforactualconsideration.

Iftheonlydisposalsareofassetsinthelistabove,youdonotneedtocompletethesepages.

Gainsfromthedisposalofpersonaleffectsorgoods,eachofwhichwasworth£6,000orlesswhendisposedof,areexempt.YoucanfindmoredetailsinHelpsheet293Chattels and Capital Gains Tax.

Information about disposalsDisposalsTaxispayableongainsfromthedisposalofchargeableassets.Adisposalwilloccurwhenthepartnership:•sells,or•givesaway,or•exchangesanasset,or•receivesacapitalsumfromtheownershipofan

asset,or•thevalueofanassetitownshasbeenincreased

attheexpenseofanassetownedbysomeotherperson.

Acapitalsumisasumthatisnotpartofthepartnership’staxableincome.

Thetaxdue,ifany,arisesonthedisposalofthepartners’interestsinthepartnershipasset.Thisisamatterforthepartnersthemselves.

Thereareanumberofspecialrulesforchargeabledisposalswhich,althoughnotrelevanttothePartnershipTaxReturn,thepartnersmayneedtoconsider.Theseinclude:•claimsthatanassethasbecomeofnegligible

value,or•disposalsofinterestsinpartnershipassets

(forexample,whenapartner’sproportionateinterestinapartnershipassetisreducedeventhoughtherehasbeennodisposaloftheassetbythepartnershipitself),or

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•occasionswhenthemarketvalueofanassetmustbetakenintoaccountratherthantheactualdisposalproceeds(‘marketvalue’isdefinedonpagePAN4ofthesenotes),or

•apartdisposalofanasset,or•disposalstoaconnectedperson

(‘connectedpersons’isdefinedonpagePAN5ofthesenotes).

Building society mergers, conversions and takeoversIfthepartnershiphas:•receivedcashasaresultofamergeroftwoor

morebuildingsocieties,or•receivedcash,orbeenissuedwithshares,or

receivedbothcashandshares,asaresultofeither

–aconversionofabuildingsocietytoacompany,or

–atakeoverofabuildingsocietybyacompany,theremaybeliabilitytoeitherIncomeTaxorCapitalGainsTax.Thebuildingsocietymaybeabletotellyouwhetherthereisanytaxliability.Ifnot,askusoryourtaxadviser.

Share reorganisations, company reconstructions and takeoversIfsharesinacompanyheldbythepartnershiphavechangedbecausethecompanyhasreorganiseditssharecapitalorifthepartnershiphasexchangedsharesinacompanyforothersharesorsecuritiesaspartofacompanyreconstructionortakeover,thepartnerswillnotbetreatedasiftheyhadmadeadisposaloftheiroriginalinterestsintheshares.Insteadthechargeablegainorallowablelossinrespectoftheinterestintheoriginalshareswillarisewhenthepartnershipmakesadisposalofthenewsharesorsecurities.Thetwomainexceptionstothisgeneralapproachwherethepartnersmaybetreatedashavingmadeadisposalonwhichthereisachargeablegainorallowablelossare:•wheretheyreceiveanythingelseinadditionto

thenewsharesorsecurities,suchasasumofmoney,or

•whereacompanyreconstructionortakeoverisnotcarriedoutforcommercialreasons,orismadeinordertoavoidtax.Companiescanapplyforclearanceinadvanceinrespectoftheseanti-avoidancerules.Theclearancewillonlybevalidifthetakeoverorreconstructioniscarriedoutinaccordancewiththeclearanceapplication.

Ifyouthinkthatthepartnershiphasobtainedsharesorsecuritiesaspartofacompanyreconstructionortakeover,oryouneedadviceabouttheanti-avoidancerules,downloadHelpsheet285Share reorganisations, company takeovers and Capital Gains Taxfromhmrc.gov.uk/helpsheets/hs285.pdforphonetheSelfAssessmentOrderlineforacopy.

What is the date of disposal?Ifthedisposalwasmadebywayofacontract,thedateofdisposalisusuallythedateofthecontract.

Inasmallnumberofcasesthecontractmaybeconditional.Thiswillapplyifoneormoreconditionshavetobemetbeforethecontractbecomesbinding.Inthesecasesthedateofdisposalisthedateonwhichthelastoftheconditionsismet.

Inothercasesthedateofdisposalwillusuallybethedatewhenownershipoftheassetwaseffectivelytransferred.

Theremaybeexceptions,particularlyiftheassetislandthathasbeencompulsorilypurchased.

Example 1The partnership sells a piece of land under an unconditional contract dated 2 April 2013. The land was conveyed to the purchaser on 2 May 2013. The disposal is treated as taking place on 2 April 2013. This date falls in the tax year ending on 5 April 2013 and you should return the disposal in the Partnership Tax Return for that year.

What are the disposal proceeds?Thetotalamountofdisposalproceedsmayinclude:•cashpayablenoworinthefuture,or•thevalueofanyassetreceivedinexchangefor

theassetdisposedof,or•therighttoreceivefuturepayments.

Anyamountreceivedincashorwhichcanbeturnedintocashshouldbeincludedinthedisposalproceeds.Butyoushouldnotincludeanythingthatispartnershipincome,withtheexceptionofanypremiumreceivedforthegrantofasubleaseoutofashortlease.

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Example 2The partnership exchanges a piece of land worth £30,000 for a painting worth £33,000. The disposal proceeds of the land are £33,000, the value of the consideration received.

Thedistinctionbetweenfuturepaymentsandtherighttoreceivefuturepaymentsisimportantwhenthepartnershipdoesnotreceiveallofthemoneyitisentitledtostraightaway.

Iftheamounttowhichthepartnershipisentitledisknownorcanbecalculated,youshouldbringinthefullamount.Noallowancecanbemadeforthepossibilitythatthewholesummaynotbepaid.

However,ifitbecomesclearlateronthatthepartnershipwillneverreceivesomepartofthetotalamountoriginallydue,thecalculationofthepartners’gainscanbeadjusted.

Ifthepartnershipreceivesthetotalamountdueininstalmentsoveraperiodexceeding18months,thepartnersmaynothavetopaythetaxwhichisdueontheirgainsinonesum.Askusfordetails.

Example 3The partnership sells shares in a company in December 2012 for £50,000, plus a sum equal to 10% of the profits made by the company in the year ended 30 June 2012. You should begin the calculation by bringing in the £50,000 and the sum equal to the percentage of profits to which the partnership is entitled. The sum can be calculated by reference to the company accounts for the period ended 30 June 2012.

Ifsomepartoftheamounttowhichthepartnershipisentitledcannotyetbecalculatedwhenthedisposalismadebecausesomefactorisnotyetknown,youshouldincludethevalueoftherighttothatfuturesum.

Whenthepartnershipreceivestheamountitisentitledto,therewillbeafurtherdisposalofthatright.

Example 4The partnership sells land for £40,000 and will also be entitled to receive 50% of any increase in the value of the land if the purchaser is able to obtain planning permission for a housing development. When the disposal is made you cannot know whether planning permission will be granted or what effect that will have on the value of the land. So you do not know how much the partnership will finally get. The disposal proceeds are £40,000 plus your estimate of the value of the right to receive more money.

Insomecircumstances,theamountthatthepartnershipistoreceiveistakentobethemarketvalueoftheassetithasdisposedof.

Marketvaluewillapplywherethedisposalis,forexample:•toaconnectedperson,or•otherwisethanbyabargainmadeatarm’s

length,forexample,agift(unless‘nogain/noloss’applies),or

•whollyorpartlyforconsiderationwhichcannotbevalued.

Adisposalwhichisotherwisethanbywayofabargainmadeatarm’slength,isadisposalinwhichoneorotherofthepartiesdidnotintendtogetthebestcommercialreturnthatcouldhavebeenobtained.Itisadisposalinwhichoneofthepartiesintendsinthattransactiontoconferagratuitousbenefitontheother.

Example 5The partnership sells land worth £40,000 to the husband or wife or civil partner of a partner for £25,000. The disposal proceeds are £40,000, the market value.

What is meant by ‘market value’ and ‘connected persons’?

Market value

Insomecasesthepricethepartnershippaidwhenitobtainedtheassetorthepriceitreceivedwhenitdisposedoftheassetmaybereplacedbythemarketvalueoftheassetinworkingoutthegainorloss.Themarketvalueisthepricetheassetmightreasonablyhavebeenexpectedtofetchontheopenmarketatthedateofacquisitionordisposal.

Thereisaspecialrulethatappliesifthepartnershiphasdisposedofassetsbyaseriesoflinkeddisposalstoconnectedpersonssothatthevalueoftheassetstransferredtakenseparatelyis

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lessthantheircombinedvalue.Whencalculatingthegain,thevalueofeachseparateassetisreplacedbyaproportionofthetotalmarketvalueoftheassetsintheseries.Anydisposalwhichtookplacemorethansixyearsbeforethenextdisposalintheseriescanbeexcluded.

Example 6The partnership owns the freehold interest in a piece of land. That interest is worth £100,000.

Four years later the partnership grants the brother of one of the partners a lease over that land. The lease is worth £20,000.

The partnership then sells the brother the freehold reversion for its market value of £60,000. Because the freehold and the lease considered separately are worth less than the unrestricted freehold, the partnership has only realised a total of £80,000 in disposing of land worth £100,000. Because this was a series of transactions, the £20,000 the partnership got from the grant of the lease must be replaced by £25,000 in working out the gain.

The £60,000 which the partnership got for the freehold reversion must be replaced by £75,000 in working out any gain on that disposal.

InthecaseofsharesorsecuritiesquotedontheStockExchangeDailyOfficialList(SEDOL)themarketvalueisthelowerof:•afigureone-quarterupfromthelowerofthe

twopricesinthequotationfortherelevantday,and

•thefigurehalfwaybetweenthehighestandthelowestpricesofrecordedbargainsforthatday.

Ifyoumakeanestimateofmarketvalue,givedetailsinbox4.2onpagePA2ofthePartnership disposal of chargeable assetspages.Wemayneedtocheckifthatvalueisaccurate.Weapproachspecialistvaluerstovaluesomeassets,mainlyunlistedshares,land,goodwillandworksofart.Youwillbeabletodiscussthevaluesyouhaveusedwithourvaluersandifwecannotagreeafterdiscussionthepartnerswillbeabletoappealtoanindependenttribunal.Ifwedonotcheckthecomputationofachargeablegain,youshouldnotassumethatvaluationsusedinthatcomputationareagreed.

Connected persons

Ifanassetisdisposedoftoaconnectedperson,thepricepaidorreceivedisreplacedbythemarketvalueoftheassetinworkingoutanygainorlossonthedisposalofthatasset.

Connectedpersonsare:•thehusbandorwifeorcivilpartnerofapartner•apartner’sbrotherorsister,orthepartner’s

spouse’sorcivilpartner’sbrotherorsister•apartner’sparents,grandparentsorother

ancestorsorthepartner’sspouse’sorcivilpartner’sparents,grandparentsorotherancestors

•apartner’schildrenandotherlinealdescendantsorthepartner’sspouse’sorcivilpartner’schildrenandotherlinealdescendants

•thehusbandsorwivesorcivilpartnersofanyoftherelativesquotedabove

•businesspartnersandtheirrelatives,togetherwiththehusbandsandwivesandcivilpartnersofthosepartners,exceptforgenuinecommercialacquisitionsordisposalsofpartnershipassets

•anycompanycontrolledeitherbyapartneroranyofthepersonsquotedabove

•thetrusteesofasettlementofwhichapartner,oranypersonconnectedwiththepartner,isthesettlor.

Ifalossismadeonthedisposalofanassettoaconnectedperson,thatlosscanonlybesetagainstgainsthepartnermakesondisposalstothatsameconnectedperson.

Filling in pages PA 1 and PA 2

Filling in page PA 1

FillinpagePA1togivedetailsaboutthepartnership’sdisposalsintheyearended5April2013.TheinformationyouprovidehelpsustodecideifweneedtoaskyouanymorequestionsaboutthePartnershipTaxReturn.

Ifthereisnotenoughspaceonthepageforallofthedisposals,photocopyitbeforefillingitinandcontinueonthephotocopy.

Column 1

Enterinthiscolumndetailsofeachchargeableassetthepartnershiphasdisposedof.Forexample,ifthepartnershipdisposedoflandorbuildings,givetheaddressandadescriptionoftheproperty.Ifthepartnershipdisposedofshares,givethenameofthecompany,thetypeofsharesdisposedofandhowmanyweredisposedof.

Column 2

Thiscolumnisonlyrelevantiftheassetyouquotedincolumn1issharesorsecurities.

Ticktheboxinthiscolumnunlessthesharesorsecuritieswerequotedsharesorothersecurities

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asdefinedonpagePAN6ofthesenotes.Youwillalsoneedtoticktheboxifyouobtainedthesharesorsecuritiesonashareexchange,orothercompanyreorganisation,andthesharesorsecuritiesyouoriginallyheldwerenotquotedsharesorothersecuritiesthroughouttheperiodyouheldthem.

Definition of quoted shares or other securities for the Partnership disposal of chargeable assets pagesForthepurposeofcompletingthePartnership disposal of chargeable assetspagesonly,‘listedsharesorothersecuritiesofacompany’meansanyofthefollowing.•Sharesorsecuritiesofacompanywhichwere

eitherlistedonarecognisedstockexchangethroughouttheperiodthepartnershipownedthem–ignoringanyperiodwhenthelistingorquotationwastemporarilysuspended(pleasegotohmrc.gov.ukformoredetails).

•SharesinacompanywhichwasaUKopen-endedinvestmentcompany(OEIC)throughouttheperiodthepartnershipheldthem.

•Unitsinaunittrustthatwasanauthorisedunittrustthroughoutthepartnershipperiodofownership.

•Sharesorunitsinanoffshorefund(thesearesimilartoUKOEICsandunittrusts)thathasbeenapprovedbyHMRCasa‘reportingfund’.IfyoudisposedofsharesorunitsinanoffshorefundthatisnotareportingfundyoumayneedtocompleteformSA802Partnership Foreign Pages–seetheSA802 notesforBox2.9forfurtherinformation.

Anysharesorsecuritiesnotwithinthe‘listedsharesandsecurities’definitionabovearetobetreatedas‘unlisted’.

Alistofrecognisedstockexchangesisavailableonourwebsiteathmrc.gov.uk/fid/rse.htmoryoucanaskus.

Column 3

Enterinthiscolumnthetotalamountofdisposalproceedsthepartnershiphasreceivedorwillreceivefromeachdisposal.PagesPAN3toPAN5ofthesenotesexplainwhattoincludeindisposalproceeds.

Box 4.1

Enterinbox4.1thetotalproceedsfromalldisposals.Makesurethatyouenterthegrossdisposalproceeds.Donotdeductincidentaldisposalproceeds.Thepartnersshouldmakedeductions(fortheirshareofthecosts)intheirpersonaltaxreturns.

Column 4

Usethisspacetoprovideotherinformation.

Forexample:•whyyouusevaluations•whetherthevalueyoutransferischargeable

underSection29or30TCGA1992•whethertherehasbeenapartdisposal•whethertherehasbeenanexchangeofshares

orsecuritiesinacompanyreconstructionortakeover.

Filling in page PA 2

Youmayusebox4.2onpagePA2togiveanymoreinformationthatyouthinkwillhelpustounderstandtheentriesonpagePA1.

Transfer of information to the Partnership Statement (full)Transferthetotalproceedsfromalldisposalsofchargeableassetstobox30inthePartnership Statement (full).

YoumayneedtoallocatesharesoftheproceedsfromeachdisposaltotheappropriatepartnersbeforeyoucancompletetherestofthePartnershipStatement.EvenifyoudonotneedtodothistocompletethePartnershipStatement,thepartnerswillneedthisinformationtocalculatethechargeablegainsarisingtothem,ifany,onthedisposalsoftheirinterestsinpartnershipassets.SeethenotesonpagesPTRG14toPTRG17ofthePartnershipTaxReturnGuideformoredetails,includinganexample.

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Helpsheets Helpsheetsgivemoredetailedinformationaboutparticulartaxrules.Youmightfindthemusefuleventhoughtheirprincipalpurposeistohelppeoplewiththeirown,personaltaxreturn.Theyexplainabouttheadditionalinformationpartnersmayneedtocalculatetheirchargeablegains.Copiesareavailablefromourwebsiteathmrc.gov.uk/selfassessmentformsortheSelfAssessmentOrderline.

•Helpsheet275Entrepreneurs’ Relief

•Helpsheet276Incorporation Relief

•Helpsheet278Temporary non-residents and Capital Gains Tax

•Helpsheet281Husband and wife, civil partners, divorce, dissolution and separation

•Helpsheet282Death, personal representatives and legatees

•Helpsheet283Private Residence Relief

•Helpsheet284Shares and Capital Gains Tax

•Helpsheet285Share reorganisations, company takeovers and Capital Gains Tax

•Helpsheet286Negligible value claims and Income Tax losses on disposals of shares you have subscribed for in qualifying trading companies

•Helpsheet287Employee share and security schemes and Capital Gains Tax

•Helpsheet288Partnerships and Capital Gains Tax

•Helpsheet290Business Asset Rollover Relief

•Helpsheet292Land and leases, the valuation of land and Capital Gains Tax

•Helpsheet293Chattels and Capital Gains Tax

•Helpsheet294Trusts and Capital Gains Tax

•Helpsheet295Relief for gifts and similar transactions

•Helpsheet296Debts and Capital Gains Tax

•Helpsheet297Enterprise Investment Scheme and Capital Gains Tax

•Helpsheet298Venture capital trusts and Capital Gains Tax

These notes are for guidance only and reflect the position at the time of writing. They do not affect any rights of appeal. Any subsequent amendments to these notes can be found at hmrc.gov.uk