The following example shows how changes in the membership of a
partnership affect the individual partners basis periods for the
purposes of their ‘deemed trade’ (Sch D Case I/II
profits) and their ‘second deemed trade’ (non Sch D
Case I/II profits).
| Peter Bailey commences
trading on 1/7/1998 and produces accounts to 30/6/1999 and then to
30/6 each year until 30/6/2010 |
- During the period 1/7/1998 to 30/6/2010
Peter Bailey is a sole-trader
- You assess any Case I/II income arising in
his business on the normal accounts basis
- You assess all other income arising in the
business on a tax year (6 April to 5 April) basis, including any
such income arising in the period 6/4/2010 to 30/6/2010
|
| On 1/7/2010 Peter
Bailey's two sons, Harry and George, join the business as
partners |
- The formation of the partnership has no
effect on Peter Bailey's Case I/II basis periods (ICTA88/S111
(4)(b))
- But from 1/7/2010 you assess Peter
Bailey's shares of any other untaxed income arising to the
partnership using Case I/II rules. You apply these rules as if the
income arises from a trade commenced on 1/7/2010 (ICTA88/S111
(8)(b)). Therefore the basis period for shares of untaxed income in
2010/11 is the 9 months to 5/4/2011 (ICTA88/S61 (1)), and for
2011/12 is the 12 months to 30/6/2011 (ICTA88/S60 (a)). The 9
months to 5/4/2011 is a period of overlap (ICTA88/S63A)
- You assess the two new partners on a
commencement basis. The same basis periods (and overlap periods)
apply to shares of Case I/II income and any other untaxed income
arising to the partnership (ICTA88/S111 (4)(b) and ICTA88/S111
(8)(b))
|
| On 30/6/2015 Peter Bailey
retires, leaving his two sons to carry on the business |
- Peter Bailey's retirement triggers a
cessation (including the rules for overlap relief) in both his
notional Case I/II trade and determines the basis of assessment for
shares of other untaxed income (ICTA88/S111 (4)(e) and ICTA88/S111
(8)(d))
- But the change in the membership of the
partnership has no effect on the basis periods used by either Harry
or George Bailey
|
| On 30/6/2017 the
partnership between Harry and George is dissolved. George continues
to carry on the business on his own |
- Harry Bailey's departure triggers a
cessation (including the rules for overlap relief) in both his
notional Case I/II trade and the notional trade used to determine
the basis of assessment for shares of other untaxed income
(ICTA88/S111 (4)(e) and ICTA88/S111 (8)(d))
- The dissolution of the partnership has no
effect on the Case I/II basis periods used by George Bailey
(ICTA88/S111 (4)(e))
|
