Two individuals, Partner X and Partner Y, have been operating as partners in FRIENDS LLP, a limited liability partnership, for many years. At the beginning of the tax year that ended on 31 December 2023, a new partner joined the LLP. On 1 December 2023, the LLP sold an investment property, which resulted in a gain of £300,000. It's worth noting that the property was purchased five years before the new partner joined the LLP.
Who is responsible for paying tax on this gain?
Two individuals, Partner X and Partner Y, have been operating as partners in FRIENDS LLP, a limited liability partnership, for many years. At the beginning of the tax year that ended on 31 December 2023, a new partner joined the LLP. On 1 December 2023, the LLP sold an investment property, which resulted in a gain of £300,000. It's worth noting that the property was purchased five years before the new partner joined the LLP.
Who is responsible for paying tax on this gain?
Each of the three partners is responsible for the capital gains tax on their share of the gain.
(E) In a Limited Liability Partnership (LLP), each of the three partners is responsible for paying the capital gains tax on their share of the gain. An LLP itself is not taxed directly. Instead, any profits or gains made by the LLP are distributed among the partners, who then pay income tax on their respective shares of the profits.
Moreover, the partners also need to pay capital gains tax on their share of any gains through self-assessment. It is important to note that the timing of when the investment property was purchased by the LLP is irrelevant. What matters is whether the new partner was a partner at the time the investment property gain was realised.