Capital Gains on liquidation of a Limited Liability Partnership
Updated 31 October 2024
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Who is likely to be affected
Members of a Limited Liability Partnership who have contributed assets to a Limited Liability Partnership that is then liquidated.
General description of the measure
This measure ensures that where a member of a Limited Liability Partnership has contributed assets to the Limited Liability Partnership, chargeable gains that accrue up to the contribution are charged to tax when the Limited Liability Partnership is liquidated and the assets are disposed of to the member, or a person connected to them.
Policy objective
This measure will increase trust in the tax system by tackling an avoidance scheme.
Background to the measure
This measure was announced at Autumn Budget 2024.
Detailed proposal
Operative date
The measure will have effect in relation to liquidations that commence on or after 30 October 2024.
Current law
Section 59A of the Taxation of Chargeable Gains Act 1992 provides that assets held by a Limited Liability Partnership are treated as if held by its members in a normal partnership. Consequently, no chargeable gains accrue when a member contributes an asset to the Limited Liability Partnership.
It goes on to provide that this treatment ceases to apply on appointment of a liquidator and that the cessation of treatment does not give rise to a disposal of any assets by its members.
Proposed revisions
Legislation will be introduced in Finance Bill 2024-25 to add a new section 59AA into the Taxation of Chargeable Gains Act 1992. This will deem that a disposal arises when a Limited Liability Partnership is liquidated and assets a member has contributed are disposed of to the member, or to a company or other person connected to them.
The amount of chargeable gain that is to accrue to the member is to be that amount equal to the amount that would have accrued (absent section 59A) at the time they contributed the asset to the Limited Liability Partnership.
The Limited Liability Partnership will be liable in the normal way for gains from that time on their actual disposal of the asset.
Summary of impacts
Exchequer impact (£ million)
| 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 | 2029 to 2030 |
|---|---|---|---|---|---|
| +5 | +15 | +15 | +15 | +15 | +15 |
These figures are set out in Table 5.1 of Autumn Budget 2024 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2024.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure impacts individuals where they contribute assets to a Limited Liability Partnership. Impacts have been detailed in the impact on business including civil society organisations section.
It is not expected to impact on family formation, stability or breakdown.
Equalities impacts
The changes introduced by this measure will apply regardless of an individual’s protected characteristics. The population impacted is expected to be a small subset of the Capital Gains Tax and Corporation Tax populations. HMRC do not hold any data on the protected characteristics of those using the Limited Liability Partnership schemes, and therefore cannot make an assessment of the impacts on those with protected characteristics.
HMRC will provide assisted digital support where this is needed and will also make alternative arrangements for digitally excluded customers.
Impact on business including civil society organisations
The measure will have a negligible impact on members of limited liability partnerships each year where, on liquidation of the Limited Liability Partnership, assets pass to a person connected to the members. In such situations, members will become liable to tax on the gains that accrued up to the asset being transferred to the Limited Liability Partnership.
One-off costs could include members familiarising themselves with the change. There are not expected to be any further one-off or continuing costs.
Customer experience is expected to remain broadly the same as it does not alter how businesses deal with HMRC.
This measure is not expected to impact civil society organisations.
Operational impact (£ million) (HMRC or other)
This measure will not require changes to HMRC’s processes.
It is expected to have a positive impact on compliance in reducing avoidance activity.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through disclosures of new avoidance schemes to circumvent the measure, and through regular communication with affected taxpayers and practitioners.
Further advice
If you have any questions about this change, please contact the Capital Gains Tax policy team by email at cgtbudget@hmrc.gov.uk.