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Review Your SQE 1 Practice Records

Examination Timing: 00H01M33S

An ordinary trading partnership has three partners: the senior partner, the managing partner, and the junior partner. The partners share income profits equally and capital profits according to their capital contributions as follows: Senior partner: 50% Managing partner: 30% Junior partner: 20% Five years ago, the firm purchased office premises. The premises have just been sold for a profit, realising a chargeable gain. 

Who will be liable to pay tax on the gain realised on the sale?

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In a partnership, each partner is responsible for paying tax on their share of the profits or gains realised by the partnership. For capital gains, the tax liability falls on the individual partners according to their share of the capital profits. In this scenario, the partners have agreed to share capital profits in accordance with their capital contributions, meaning: The senior partner is liable for 50% of the gain. The managing partner is liable for 30% of the gain. The junior partner is liable for 20% of the gain. Each partner will be liable to pay Capital Gains Tax on their respective share of the chargeable gain. The firm itself does not pay Corporation Tax on the gain because it is not a corporate entity but an ordinary trading partnership. 

Key Point: In a partnership, individual partners are responsible for Capital Gains Tax on their share of the gain based on their agreed profit-sharing ratios. This ensures that tax liabilities are allocated in line with the partners' interests in the partnership’s capital assets.

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