How can a partner leave a partnership without taking capital, tax free?

How can a partner leave a partnership without...

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I have a client, two person partnership, father and son. Dad is getting older (70's) and has not been active in partnership for many years, but remained as a sleeping partner. He now wants to "tidy up" his affairs and wants to leave the partnership. He has accumulated approx. £35,000 in his partners capital account.

Dissolution process should be all fairly straight forward, as both parties are family and still friends! Dad actually wants to retire from partnership, but leave his capital, with no obligations at all on his son, within the partnership.

This is what I am unsure about, as, obviously , they want to do this with minimum fuss, but no tax liability and I am concerned that he would be , in effect, gifting the £35,000 to his son and therefore this would be a PET and potentially liable to Inheritance tax. Anyone else done anything similar? Or any pointers on the best way to do this would be gratefully received.

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By johngroganjga
25th Mar 2015 22:04

Yes it's a PET.

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