Income Tax (Trading and Other Income) Act 2005

852 Carrying on by partner of notional trade

(1) For each tax year in which a firm carries on a trade (the “actual trade”), each partner’s share of the firm’s trading profits or losses is treated, for the purposes of Chapter 15 of Part 2 (basis periods), as profits or losses of a trade carried on by the partner alone (the “notional trade”).

(2) A partner starts to carry on a notional trade at the later of—

(a) when becoming a partner in the firm, and

(b) when the firm starts to carry on the actual trade.

This is subject to subsection (3).

(3) If the partner carries on the actual trade alone before the firm starts to carry it on, the partner starts to carry on the notional trade when the partner starts to carry on the actual trade.

(4) A partner permanently ceases to carry on a notional trade at the earlier of—

(a) when the partner ceases to be a partner in the firm, and

(b) when the firm permanently ceases to carry on the actual trade.

This is subject to subsections (5) and (6).

(5) If the partner carries on the actual trade alone after the firm permanently ceases to carry it on, the partner permanently ceases to carry on the notional trade when the partner permanently ceases to carry on the actual trade.

(6) If—

(a) the firm carries on the actual trade wholly or partly outside the United Kingdom, and

(b) the partner becomes or ceases to be UK resident,

the partner is treated as permanently ceasing to carry on one notional trade when the change of residence occurs and starting to carry on another immediately afterwards.

(7) Subsection (6) does not prevent a loss made before the change of residence from being carried forward under section 385 of ICTA and set against profits arising after the change.