Where there is a change in ownership of the partner company
the income amount must reflect not only the change in the ownership
of the partner company but also its interest in the partnership
business and any changes in that interest. This is achieved by
limiting the amount of the income.
Example 1
To calculate the income amount:
Step 1 – find the basic amount as if the company were
the partner company in paragraph 29. This is the amount found by
the formula PM – TWDV.
Step 2 – adjust this amount if the sale is other than
an outright sale to reflect the appropriate percentage change in
the ownership of the company in line with paragraphs 19 to 21
(company becoming a member of a consortium). See
BLM80540.
Step 3 – limit this amount according to the
circumstance of the change:
Examples 2 to 4 follow.
Example 2: income amount – change in ownership of
partner
In this example there is a qualifying change in the ownership of
C Ltd.
Step 1
Calculate the basic amount. If PM - TWDV = 1000 then the
basic amount is 1000.
Step 2
The sale is an outright sale of C Ltd so there is no need to
make an adjustment in line with paragraphs 19 to 21. The basic
amount remains at 1000.
Step 3
There is no change in the company’s interest in the
business and so the appropriate percentage is the percentage share
in the profits on the relevant day – 50%.
The charge is therefore 500.
Example 3: income amount – change in ownership of
partner
In this example there is a qualifying change in the ownership of
C Ltd.
Step 1
Calculate the basic amount.
If PM - TWDV = 1000 then the basic amount is 1000.
Step 2
The sale is not an outright sale of C Ltd. D Ltd becomes a
consortium company. The relevant fraction at the end of the day is
50% so an adjustment is made to the basic amount in line with
paragraph 20 to give an amount which is the appropriate percentage
100 – 50 = 50%. The amount is now 500.
Step 3
There is no change in the company’s interest in the
business and so the appropriate percentage of the amount now
calculated is the percentage share in the profits – 50%.
The income amount is therefore 250.
Example 4: income amount – change in ownership of
partner + interest in business
In this example there is both a qualifying change in the
ownership of C Ltd and a change in the interest of C Ltd in the
partnership business. The change in the interest of C Ltd in the
partnership business generates an amount of income and expense in
addition to that generated by the qualifying change in the
ownership of C Ltd.
Step 1
Calculate the basic amount.
If PM - TWDV = 1000 then the basic amount is 1000.
Step 2
The sale is not an outright sale of C Ltd. D Ltd becomes a
consortium company. The relevant fraction at the end of the day is
50% so an adjustment is made to the basic amount in line with
paragraph 20 to give an amount which is the appropriate percentage
100 – 50 = 50%. The amount is now 500.
Step 3
There is also a change in the company’s interest in the
business and so the amount is limited to the appropriate percentage
of the amount now calculated. The appropriate percentage is the
percentage share in the profits at the end of the day- 20%.
The income amount is therefore limited to 20% of 500 = 100.
The change in the interest of C Ltd in the partnership
generates a further income amount.
If PM - TWDV = 1000 then the basic amount is 1000. This is
adjusted to reflect the fall in the company's relevant percentage
share: 50 - 20 = 30%. A further income amount of 1000 x 30% = 300
is brought into charge.
The total income amount arising as a consequence of this
transaction is therefore 100 + 300 = 400. This reflects the change
in the economic ownership of the business by the D group. At stage1
D Ltd owned 50% of the business, at stage 2 D Ltd owns only 10% of
the business through its 50% holding of the 20% partner. This
overall fall of 40% is reflected in the income of 400.
