188体育

Section 3 of SP D12 explains the CG treatment when a partnership distributes an asset to one or more of its partners. Such a distribution may occur, for example, when the partnership is dissolved.

Any partners to whom the asset was not distributed will be treated as having disposed of their fractional interests in the asset at the time of the distribution. For the purpose of calculating any gains or losses the asset is treated as having been disposed of for an amount equal to its current market value at the time of the distribution.

The partner to whom the asset was distributed will not be treated as having made a disposal at the time of the distribution. In fact, his interest in the asset will have increased. His CG base cost on a future disposal of the asset will be determined by reference to its market value at the time of the distribution as reduced by the amount of the notional gain arising on his fractional interest at that time.

Example

A and B carry on a business in partnership and hold equal interests in partnership assets.

The partnership owns a freehold property which cost 拢400,000.

On the dissolution of the partnership the property was distributed to Partner B.

The market value of the property at the time of the distribution was 拢640,000.

The chargeable gain arising on the disposal by A of his fractional interest in the asset at the time of the distribution and the notional gain arising on B鈥檚 fractional interest in the asset are computed as follows:

-	Partner A	Partner B
Disposal proceeds based on market value	-	-
拢640,000 x 50%	拢320,000	拢320,000
Less acquisition cost	-	-
拢400,000 x 50%	拢200,000	拢200,000
Chargeable Gain	拢120,000	-
Notional Gain	-	拢120,000

Partner A

The gain accruing to Partner A, 拢120,000, will be chargeable at the time of the distribution.

Partner B

The notional gain accruing to Partner B is not chargeable as the effect of the distribution is that his interest in the asset has increased. His CG base cost on a future disposal of the property will be the market value of the asset at the time of the distribution reduced by the notional gain:

-	Amount
Market value of asset	拢640,000
Notional gain on distribution	拢120,000
CG base cost	拢520,000

Note that Partner B acquired a 50% interest in the asset for 拢200,000 on its acquisition by the partnership. At the time of the distribution he acquired a further 50% interest for an amount equal to the disposal consideration taken into account for Partner A, i.e. 拢320,000. His total acquisition cost is therefore 拢520,000.