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Accountant entitled to ER on sale of partnership property

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An accountant was entitled to claim entrepreneurs’ relief on disposal of the partnership property when he left his firm, despite the delay in fully transferring his partnership interest to the new partners.

18th Feb 2022
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Thomson is a chartered accountant. In 1970, he became a partner at Voisey & Co, joining the original sole partner. In 1974 the partnership bought the property at 8 Winmarleigh Street, which it continued to occupy.

Around 1990 the original partner retired and the practice bought out his share, leaving Thomson entitled, through the partnership, to 99.9% of 8 Winmarleigh Street. In 1995 the partnership bought 6 Winmarleigh Street and expanded its offices into the new premises.

Long goodbye

In 1996 Thomson started to consider retirement and succession. Two new partners were identified to take over from him. Although nothing was reduced to writing, to effect the transition it was agreed that:

  • The new partners would each pay Thomson £20,000 a year for the then £434,000 of work in progress until Thomson was left with a token 1%.
  • Thomson would transfer clients over to the new partners, starting with compliance and audit matters, and thereafter Thomson’s more difficult longstanding clients.
  • As matters were transferred the new work would be credited to the new partners and so gradually Thomson’s share of profits would reduce.
  • Thomson would gradually reduce his hours to match.

In 1996, Thomson was entitled to 99.9% of profits. That had reduced to 20% in 2017/18, with an 8% reduction during 2017/18. By this time Thomson had disposed of 99% of goodwill and old work in progress. However, Thomson retained his interest in the Winmarleigh Street premises through the partnership.

The transfer did not happen as quickly as envisaged, due to difficulties with a few final clients, meaning Thomson needed to carry out his roles under the protection of the partnership. However, in 2021 Thomson handed over his final personal client to the new partners.

In respect of the Winmarleigh Street premises, the new partners did not wish to purchase the premises, and it was agreed that the building would be rented from Thomson. Later, the premises became attractive to Thomson’s pension scheme as a source of income and it was sold to the pension scheme in October 2017, taking a three year lease at £32,000 a year rent with options to renew.

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