Finance Act 2004

131 Companies in partnership U.K.

(1) This section applies if—

(a) on or after 17 March 2004, a company that is or has been a member of a partnership—

(i) directly or indirectly draws out or receives back any capital from the partnership; or

(ii) receives consideration for a disposal on or after 17 March 2004 of all or any of its interest in the partnership;

(b) as at the relevant time, the sum of—

(i) the total amount of any relevant withdrawals, and

(ii) the total amount or value of any relevant consideration,

exceeds the company’s contribution to the partnership;

(c) that excess (or any part of it) results directly or indirectly from an arrangement under which any relevant profit was shared in such a way that the company was not allocated all or part of its due share of the profit; and

(d) if the company’s due shares of relevant profits had been allocated to the company, some or all of them would have been chargeable to corporation tax.

(2) For the purposes of this section—

(a) “the relevant time” means the time immediately after the capital is drawn out or received back or (as the case may be) the consideration is received;

(b) a “relevant withdrawal” means any capital that the company has, directly or indirectly, drawn out or received back from the partnership at any time on or after 17 March 2004;

(c) “relevant consideration” means consideration received by the company at any time on or after 17 March 2004 for the disposal on or after that date of all or any of its interest in the partnership;

(d) “the company’s contribution to the partnership” means the sum of—

(i) the amount that it has contributed to the partnership as capital (excluding any amount originally contributed by a person from whom the company acquired an interest in the partnership); and

(ii) any amount paid by the company to such a person for such an interest;

(e) a “relevant profit”is the profit of the partnership computed for any period, but does not include any profit, or any part of a profit, that derives from income arising before 17th March 2004;

(f) the company’s “due share”of any relevant profit is the share of the profit that the company would have been allocated if it had been allocated a share calculated by reference to the percentage of the total capital contributed (as defined by subsection (3)) that was contributed by it.

(3) To find “the total capital contributed” for the purposes of subsection (2)(f)—

(a) find, as respects the end of each day in the period for which the profit was computed, the total amount of capital that as at that time had been contributed to the partnership and had not been drawn out or received back;

(b) aggregate those amounts; and

(c) divide by the number of days in that period.

(4) Where this section applies, the company shall be treated as receiving, at the relevant time, annual profits or gains which are of an amount equal to the chargeable amount and chargeable to tax under Case VI of Schedule D.

(5) The chargeable amount is (subject to subsections (8) and (9)) so much of A as does not exceed B, where—

• A is the amount by which, at the relevant time, the sum of the total amount of any relevant withdrawals and the total amount or value of any relevant consideration exceeds the company’s contribution to the partnership; and

• B is the amount by which, at the relevant time, the total amount of the company’s due shares of relevant profits exceeds the total amount of the shares of relevant profits that were actually allocated to the company.

(6) If any non-income amount is taken into account in computing a relevant profit, then for the purposes of subsection (5) the amount of the company’s due share of the relevant profit and the amount of the share of the relevant profit that was actually allocated to the company shall be taken to be what they would have been if all non-income amounts had been left out of account in computing the relevant profit.

(7) In subsection (6) a “non-income amount” means an amount that for the purposes of corporation tax would not be taken into account as income or in computing income.

(8) Subsection (9) applies if this section applies on more than one occasion in relation to the same company and partnership (whether because of two or more receipts by the company of consideration relating to the same disposal or for any other reason).

(9) On each occasion after the first, the amount found under subsection (5) shall be reduced (but not below nil) by the total of the chargeable amounts found (under that subsection read with this) on the previous occasions.