Partnerships are treated as transparent for Capital Gains Tax (CGT). This means that each partner is responsible for their share of any capital gains arising on the disposal of their interests in the assets of the partnership. Each partner is treated as owning a fractional interest in each of the assets of the partnership.

It is important to be aware of the rules where partnership assets are distributed in kind to one or more partners. This type of distribution can occur, for example, by a distribution when a partnership is dissolved. Any partners to whom the asset was not distributed will be treated as having disposed of their fractional interests in the asset at the time of the distribution. These partners will be taxed on their fractional interest of the gain based on market value.

The partner to whom the asset was distributed will not be treated as having made a disposal at the time of the distribution. In fact, his or her interest in the asset will have increased. Their CGT base cost on a future disposal of the asset will be determined by reference to its market value at the time of the distribution as reduced by the amount of the notional gain arising on their fractional interest at that time.