Transfer of Assets & Income Streams through Partnerships


Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Transfer of assets and income streams through partnerships


As anyone with even the most fleeting interest in the UK tax system will know, the tax code is full of anti-avoidance measures. Relics of a time when the wit and ingenuity of the tax avoidance industry tried to drive coaches and horses through perceived loopholes in the legislation.

However, a more recent anti-avoidance rule relates to the transfer of assets and income streams through partnerships and Limited Liability Partnerships (“LLPs”)

This article aims to help you understand these rules which impose an income tax charge where there is a transfer of assets and income streams through partnerships.

Overview – transfer of assets and income streams through partnerships

The rules are aimed at preventing a person – whether an individual, company or other – from obtaining a tax advantage. That tax advantage must be gained, in the absence of the legislation, from the fact that the different members of a partnership have different ‘tax attributes’.

For example, where a tax advantage results from one partner being a corporate body and the other is an individual or where one has losses and the other does not.

The rules apply where each of two conditions is satisfied.

Condition 1 – Factual Conditions

The first condition is a factual one.

Where the arrangements are in consequence of which a member of a partnership – or a person connected with that partnership – transfers all or part of either (i) an asset; or (ii) a right to income through a partnership to another member. 

Condition 2 – Tax Advantage Motive

The second condition is one of intention.

Specifically, was the obtaining of a tax advantage (in relation to income tax or CT on income tax) the main purpose, or one of the main purposes, of the arrangements.

Clearly, the absence of any commercial motives for a transaction that fell in to Condition 1might mean that Condition 2was satisfied.

Effective Date

These new rules came in to effect as follows:

  • Corporate members of partnerships / LLPS: from 1 April 2014
  • Individual members of the same: 6 April 2014

The Effect of the Provisions

When transferring assets and income streams through a partnership an income tax charge is imposed and that is usually to counter tax avoidance. It applies especially when assets or income streams are transferred by different members in a partnership, including LLPs, in order to benefit from various tax attributes.

Usually, the market value of the asset or income stream is taken into consideration where the main purpose or even one or more steps in the transfer is to acquire income tax or corporation tax advantage.


Jimmy, who is a partner in the Behind the Times partnership (BTT). He wants to extract some cash in a tax efficient manner so agrees to sell part of his interest in BTT to a Tardy Limited, a corporate partner in BTT. In exchange, he will receive a capital sum.

The deal is easy to arrange as Jane, Jimmy’s wife, owns 100% of the shares in Tardy.

Marley & Co have advised him to do it this way as it would allow Jimmy to crystalise a capital gain and he could obtain Entrepreneurs’ Reliefat 10%. Quids in.

The plan is also that Tardy will also claim tax relief under the Corporate intangibles regime.

Unfortunately, in this example, the legislation will bite. It will treat the disposal as income Jimmy’s hands. Tardy will not be entitled to a corresponding deduction on purchase.

Tax Charge

As stated above, the result of the provisions is that the transferor is deemed to receive a slug of income and this is subject to tax.

Tax is charged on a so-called “relevant amount’.

If an asset is transferred for consideration, then the relevant amount is the amount of that consideration (as in our example of Jimmy).

If, instead, an income stream is transferred and the consideration received is significantly less than the market value of that particular right, the specific amount in question will be considered as the market value.

Exceptions – Keeping it in the Family

These rules do not apply where the either:

  • The transferor is the spouse or civil partner of the transferee (and they are living together); or
  • The transferor is a brother, sister or ancestor or lineal descendant of the transferee.

So one is fine in general where it is being ‘kept in the family’.


These new rules around the transfer of assets and income streams through partnership rules are complex and highlight that, if one is considering structuring a business involving other parties, one should obtain proper professional advice.

If you have any queries about transfer of assets and income streams through partnerships then please get in touch.

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