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As mentioned above, basic rate tax will be suffered by the retired partner at source when the annuity is paid to them. »Ê¹ÚÌåÓýapp capitalised value of the annuity payable is also treated as consideration for the disposal of the retiring partner’s fractional interest in the partnership assets. However, paragraph 8 of Statement of Practice (SP) D12 treats the capitalised value of an annuity as consideration only if it is regarded as more than a reasonable recognition of the retired partner’s past contribution of work and effort to the partnership. A lump sum may be payable in addition to an annuity and guidance on how this affects the application of paragraph 8 of SP D12. Detailed guidance is at CG28400. Normally, partnerships will be careful to ensure that annuities payable to retired partners will not trigger a capital gains charge.

This manual contains general notes on the application of SP D12 at PM272000