PM145120 - Partnerships that include partnerships as partners

Where a partnership (the reporting partnership) includes any partner who is another partnership

If a partnership has a partner who is also a partnership, to enable the partners within the chain of partnerships (i.e. the ‘indirect’ partners of the reporting partnership) to complete their own tax returns the reporting partnership must calculate that partnership’s allocation of profits and losses on the basis that each of the following assumptions apply:

a) That it is a UK resident individual;

b) That it is a non-UK resident individual;

c) That it is a UK resident company;

d) That it is a non-UK resident company.

The reporting partnership may instead provide the name of every person who was an indirect partner during any part of the period and the details of whether that partner was an individual, company, partnership (or something else) and/or their residence status. In that case only those calculations under (a) to (d) above relevant to those named partners need be carried out.

When completing the partnership statements, where more than one of (a) to (d) has been required in respect of the partnership that is a partner, the reporting partnership must complete a partnership statement for that partnership that is a partner to show one set of calculations and may submit an attachment showing the profits and losses arising from the other calculations. A copy of the partnership statement, and any attachment, should be provided to that partnership.

For this to apply, the reporting partnership must provide the indirect partners information in the ‘Additional information’ box, box 3.116, or as an attachment to the return.

Where any calculations under (a) to (d) are identical to each other, a note on a statement to say (for example) that it represents the calculation under both (a) and (d) may be made so that two separate but identical statements need not be attached.

Where the income of a partnership is wholly investment and the partnership is unable to provide all the indirect partner information required under 12AB (1C) TMA70 and the reporting partnership has no indirect non-UK resident members that have a UK tax liability on this income, they do not have to provide calculations on either of the non-resident bases to HMRC.

If one or more partnership statements covering non-resident calculations are not provided, the partnership’s tax return will be regarded as reporting nil UK taxable profits on the base(s) for which statements are not provided.

If HMRC have reason to believe that the reporting partnership had sufficient information to be aware that there was income that could lead to a UK tax liability on an indirect non-UK resident partner, but failed to provide the necessary partnership statement reporting the calculation of the UK taxable profits under s12AB (1B), the partnership will be treated as submitting an incorrect return which may lead to penalties and interest.

This does not affect the ongoing requirements in respect of direct partners, or (where full information is not available in respect of the indirect partners) the requirements to provide partnership statements covering the calculations on both UK resident bases (as if the partnership business were carried on by a UK resident individual, and as if it were carried on by a UK resident company).

Where a partnership is a partner in another partnership

If a partnership is a member of another partnership, any profits or losses that the reporting partnership receives from another partnership, must be shown as from a separate source from their own partnership profits and losses for the purposes of completing their partnership statements. They will need to:

1. carry out the necessary calculations of their own profits and losses and complete partnership statements for each of their own partners, and
2. complete additional partnership statements showing their allocation of the profits or losses from the separate source to each of their own partners, using the relevant calculations provided by the partnership in which they are a partner.

In cases where the partnership has no other business, then a note to the effect that the partnership’s only source is the partnership in which it is a partner may be entered in box 3.116 ‘Additional information’, and only one set of partnership statements prepared.