Finance Act 1994

215 Treatment of partnerships

(1) For section 111 of the Taxes Act 1988 there shall be substituted the following section—

“111 Treatment of partnerships

(1) Where a trade or profession is carried on by two or more persons in partnership, the partnership shall not, unless the contrary intention appears, be treated for the purposes of the Tax Acts as an entity which is separate and distinct from those persons.

(2) So long as a trade or profession (“the actual trade or profession”) is carried on by persons in partnership, and each of those persons is chargeable to income tax, the profits or gains or losses arising from the trade or profession shall be computed for the purposes of income tax in like manner as if the partnership were an individual.

(3) A person’s share in the profits or gains or losses of the partnership which for any period are computed in accordance with subsection (2) above shall be determined according to the interests of the partners during that period; and income tax shall be chargeable or, as the case may require, loss relief may be claimed as if—

(a) that share derived from a trade or profession (“the deemed trade or profession”) carried on by the person alone;

(b) the deemed trade or profession was set up and commenced by him at the time when he became a partner or, where the actual trade or profession was previously carried on by him alone, the time when the actual trade was set up and commenced; and

(c) the deemed trade or profession is permanently discontinued by him at the time when he ceases to be a partner or, where the actual trade or profession is subsequently carried on by him alone, the time when the actual trade or profession is permanently discontinued.

(4) Where—

(a) subsections (2) and (3) above apply in relation to the profits or gains or losses of a trade or profession carried on by persons in partnership, and

(b) other income accrues to those persons by virtue of their being partners,

that other income shall be chargeable to tax by reference to the same periods as if it were profits or gains arising from the trade or profession.

(5) Subsections (1) to (3) above apply, with the necessary modifications, in relation to a business as they apply in relation to a trade.”

(2) In section 114 of that Act (special rules for computing profits or losses), after the word “trade”—

(a) in subsection (1), in each place where it occurs;

(b) in subsection (2); and

(c) in subsection (3), in the first place where it occurs,

there shall be inserted the words “profession or business”.

(3) The following provisions of that Act shall cease to have effect, namely—

(a) in section 114, in subsection (3), the words from “except that” to the end, and subsection (4);

(b) in section 115 (provisions supplementary to section 114), subsections (1) to (3) and (6); and

(c) in section 277 (personal reliefs: partnerships), in subsection (1), the words “Subject to subsection (2) below”, paragraph (c) and the word “and” immediately preceding that paragraph, and subsection (2).

(4) This section and section 216 below—

(a) except in their application to partnerships mentioned in subsection (5) below, have effect as respects the year 1997-98 and subsequent years of assessment, and

(b) in its application to partnerships so mentioned, have effect as respects the year 1994-95 and subsequent years of assessment.

(5) The partnerships referred to in subsection (4) above are partnerships—

(a) whose trades, professions or businesses are set up and commenced on or after 6th April 1994; and

(b) which are not partnership firms to which section 112(3) of the Taxes Act 1988 (partnerships controlled abroad) applies.