1008 Separate assessment of partners

Summary

This section provides that, in the case of a trade (or profession) carried on by a partnership, profits arising to a partner are charged, and losses sustained by a partner in the trade are relieved, as if they were, respectively, profits and losses of a separate trade carried on by him/her on his/her own account.

The amount of any profits or losses arising to a partner is determined by apportioning, in full, the tax-adjusted profits or losses of the partnership trade in accordance with the apportionment rules in the section.

Charges arising in an accounting period are apportioned to each partner by reference to the amount the partner was liable to bear.

Details

Several trade of partners

(1) The profits arising to any partner in a relevant period from a partnership trade are to be charged, and losses sustained by the partner in the trade are to be relieved, as if they were respectively profits and losses of a separate trade carried on by him/her on his/her own account. The notional separate trade of any partner (referred to as “a several trade”) is to be regarded as having been commenced at the beginning of the relevant period or at such later time as the partner became engaged in carrying on the partnership trade. The commencement provisions apply accordingly. The cessation provisions are to operate, in relation to the several trade of a partner, on the footing that the ending of the relevant period, or the partner’s ceasing to be engaged in carrying on the partnership trade (whichever occurs first), constitutes permanent discontinuance. Annual payments made by the partnership are apportioned as appropriate among the partners.

Apportionment of tax-adjusted profits and losses

(2)(a)(i) The amount of the profits (or loss) which is to be taken as arising to (or suffered by) each partner in a year or period is the part of the full tax-adjusted profits (or loss) of the partnership for that year or period which would arise if those profits (or that loss) were apportioned in accordance with the terms of the partnership agreement relating to the sharing of profits and losses.

(2)(a)(ii) Where the aggregate of the amounts of the profits taken as arising to each partner in a year or period is less than the full tax-adjusted profits or gains of the partnership for that year or period, then the balance is to be apportioned between the partners for tax purposes either:

• in the ratio which is expressed between the partners in relation to the apportionment of that amount, or
• where no such ratio is expressed, in the same ratio as the ratio which applies between the amounts of profits or gains already apportioned between the partners. In circumstances where no partner had profits or gains taken as arising to him/her, then the apportionment of any tax-adjusted profits or gains that were not apportioned are to be made in equal shares.

(2)(b) Sections 65 and 107 are to apply as if a partner’s share of profits or losses brought out by any accounts made up for the partnership trade were profits or losses brought out by accounts made up for his/her several trade.

(3) The inspector is to determine the amount of the partnership profits for any period and he/she is to do so as if the partnership trade had been set up at the beginning, and permanently discontinued at the end, of the relevant period and had at all times during that period been carried on by one and the same person. Where a relevant period began before 6 April 1965 and the trade was not treated, for tax purposes, as having been set up or commenced at that time, the latest date before 6 April 1965 on which the trade was treated as having been commenced is, for the purposes only of computing partnership profits, to be taken as the beginning of the relevant period. In such a case, where a person carried on the trade on his/her own account at some stage during the extended relevant period, his/her profits as a sole trader are treated as being the profits of a partnership trade of which he/she was entitled to the full profits.

(5) The section is not to cause income which, apart from the section, is not earned income to become earned income (for example, the income of a sleeping partner which by virtue of section 3(2)(a)(iii) is not earned income but is deemed by the section to be income from a trade carried on solely by him/her).

Relevant Date: Finance Act 2019