Partnership CGT

Partnership CGT

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I would be grateful for some assistance with the following CGT calculation please:

In March 1988, Partner 1 & Partner 2 jointly purchased a commercial premises for £235,000 from which they commenced to trade. In January 2002, the spouses of partner 1 & partner 2 joined the partnership.

In October 2004, husband and wife, partner 1 & partner 3 purchased the property and goodwill from partners 2 & 4. The amount paid was: Goodwill £212,500, Retiring partner's capital account balance £1,649 and £287,500 for the property.

In August 2013, partners 1 & 3 sold the property for £460,000 and the goodwill for £40,000. The profit sharing ratios were partner  (60%) and partner 3 (40%)

My draft calculation is:

Partner 1:                 (60%)          Partner 3:              (40%)

Property - Cost       £290,000       Property - Cost   £115,000

              Proceeds £276,000        Proceeds            £184,000

              Loss         £14,000        Gain                     £69,000

Goodwill - Cost        £127,500    Goodwill - Cost    £85,000

               Proceeds  £24,000        Proceeds            £16,000

               Loss       £103,500         Loss                   £69,000

Phew!!

Thank you in anticipation.

Replies (6)

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By tebthereb
17th Mar 2014 22:06

Cost

How have you got cost of £405,000 (£290k + £115k) on the property for Partners 1 & 3 when they paid a total of £287,500 for it?

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Replying to DJKL:
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By steverose
18th Mar 2014 11:36

Partnership CGT

Thank you for getting back to me. My calculation is:

March 88 Partner 1 50% share of £235,000 = £117,500

October 04 Partner 1 60% share of £287,500 = £172,500

Total £290,000

October 04partners 2 & 4 retired leaving partner 1 with 60% and partner 3 with 40% (husband & wife)

So my calculation was October 04 Partner 3 cost 40% of £287,500 paid = £115,000

£290,000 + £115,000 = £405,000

I think I might be wrong in my assumption that I split the acquisition cost in accordance with the profit sharing ratio's?

Regards

Steve

 

 

 

 

 

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By JCresswellTax
18th Mar 2014 09:16

Because

Partner 1 originally paid half of £235k (£117,500) and then purchased the other half from partner 2 for £287,500.

My question with regards the property then is that does partner one not hold 75% of the property, being his original 50% + half of the second 50% ?

Or were the title deeds for the second 50% purchase put soley in the name of his wife?

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Replying to andy.partridge:
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By steverose
18th Mar 2014 11:40

Thank you for your comments. 

Thank you for your comments. 

Partner 1 purchased the other half of the property from partner 2 with his wife (partner 3). I have assumed, rightly or wrongly, that the purchase should be split in accordance with the profit sharing ratios at the time. Partner 1 60% and Partner 3 40%. I would appreciate your thoughts.

Kind regards

Steve

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By trust.pem
18th Mar 2014 14:22

What proportion did partner 3 own?

Your calculations suggest that partner three has a base cost for the property of £115,000, being 40% of the half purchased from partners 2 and 4. Partner 3 has therefore purchased only 20% of the property (40% x half). You have, however, allocated 40% of the full proceeds to partner 3.

You need to confirm whether, on joining the partnership, partner 3 took on part ownership of the property. If so, your base cost needs to reflect this, otherwise, you have allocated too much proceeds.

It is possible for the capital assets to be owned in differing proportions to the profit sharing ratio.

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Replying to Moonbeam:
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By steverose
18th Mar 2014 17:47

Thank you very much. Your answer is most helpful.

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