CTM36590 - Particular topics: companies in partnership: transfer of relief between companies and partnerships

ICTA88/S116 is designed to prevent companies from using partnerships to transfer losses from one company to another. By doing this, companies could indirectly obtain relief for unrelieved ACT. This abuse was expected to follow from the stringent rules for entitlement to group relief by groups and consortia. These rules are now at ICTA88/S413 (7) (CTM80150 and CTM80155) and ICTA88/S403C (CTM80525, CTM80540 and CTM80545).

Section 116 prevents the sideways setting-off of losses, charges and ACT where profits or losses have been bought or sold between partners for tax saving purposes. The advantage is cancelled by keeping the partnership trade separate so that partnership losses and charges cannot be used by the company against other profits. Losses, charges and ACT outside the partnership cannot be set against the partnership's profit or liability.

In practice very few cases to which Section 116 could apply are seen. These avoidance rules work well. If you encounter a case to which you believe that Section 116 might apply please, in the first instance, ask CTIAA (Technical) for the Section 116 instructions.