BLM81090 - Sale of lessor companies and similar arrangements: partnerships: amount of expense - change in partner company’s interest in the partnership - HMRC internal manual - GOV.UK

As for lessor companies the income amount is matched by an expense amount and this expense amount must be calculated and allocated appropriately.

When a partner reduces its interest in a business another partner will increase its interest in the business. This may happen because a partner leaves and the other partners take on the

share of the leaving partner or when a partner sells its share in a partnership to a new partner.

When this happens, the other partner whose share increases as a consequence will be allocated an amount to be treated as an expense of its notional business.

This amount is limited to the ‘appropriate percentage of the amount of the income’.

OCI is the increase in the partner’s interest in the business. This includes an increase from ‘nil’ in the case of a company becoming a partner.

PCD is the decrease in the partners’ interests in the business.

The amount of the income is the amount brought into charge under section 417.

In this example the interest of A Ltd in the partnership business falls by 80%.

The interest of B Ltd in the partnership business increases by 80% and this increase is caused by the decrease in the interest of A Ltd in the partnership business.

The expense amount is therefore 80/80 = 100% of the amount brought into charge.