SolvedCTM80152 | Groups: group relief: group relief and partnerships
From HM Revenue & Customs · Company Taxation Manual
CTA10/S131, CTA10/S132 and 133, CTA09/S1273(1)(c) and (2)(c)
Group and consortium conditions
The group and consortium conditions (respectively CTA10/S131, and S132 with S133) establish that the group relief provisions can only apply to companies.
CTA10/S188 defines a company for group relief purposes as any body corporate.
General partnerships and limited partnerships
General partnerships governed by the Partnership Act 1890 and Limited Partnerships registered under the Limited Partnerships Act 1907 cannot claim or surrender group relief. They are not bodies corporate.
Institutions organised outside the UK and considered to be partnerships in their home territory may be ‘companies’ for the purposes of group relief, depending on the facts and circumstances of the institution concerned.
Classification under UK law does not necessarily follow treatment in the home territory.
The classifications at INTM180020 may be helpful as a starting point, but the facts and circumstances must be considered in light of the specific group relief rules.
A trading partnership in England, Wales or Northern Ireland has no legal personality and cannot own assets, so the assets of the partnership are treated as beneficially owned by the partners.
This will generally be in proportion to the members’ partnership shares, determined by the partnership agreement, but see PM163270 for more details on the property of partnerships.
Limited Liability Partnerships (LLPs)
A UK Limited Liability Partnership (LLP) is by statute a body corporate, but is specifically excluded from the definition of company by CTA09/1273 (2)(c), so an LLP cannot claim or surrender group relief.
CTA09/S1273 (1)(c) treats the property of an LLP carrying on a trade or business with a view to profit as held by the members as partnership property.
It follows that for group relief purposes any ordinary share capital held by an LLP is treated as beneficially owned by the LLP members in the proportion of each member’s share in the LLP, and thus an LLP can be “looked through” to establish a group relationship.
See PM131400 for more details on LLPs.
Chargeable gains
Similar principles apply to groups for the purposes of chargeable gains.
Examples
The following examples with diagram illustrate how beneficial ownership is attributed to partners where shares are held through partnerships.
Example 1: General partnership holding 100% of a company
The English general partnership owns 100% of the share capital in E Limited.
A, B, C, and D Limited are members of the partnership and each own a proportion of the partnership assets.
Explanation
The beneficial ownership of the partnership assets is considered to belong to the members in proportion to their partnership shares. Hence:
A Limited will own (80% × 100%) = 80% of the ordinary share capital in E Limited.
B Limited will own 5%.
C Limited will own 10%.
D Limited will own 5%.
This means that A and E will be in a group relationship because E is a 75% subsidiary of A.
Example 2: Limited partnership with indirect and direct ownership
X Limited and Y Limited are, respectively, 26% and 74% partners in the English limited partnership and entitlement to assets follows the partnership share.
The partnership holds 90% of the ordinary share capital in Z Limited.
The other 10% of the share capital in Z Limited is owned directly by Y Limited.
Explanation
X Limited is the direct beneficial owner of:
(26% × 90%) = 23% of the ordinary share capital in Z Limited, because of its partnership share
(see CTA10/S1155(1): shareholdings are only indirect if held through a body corporate).
Y Limited is the direct beneficial owner of:
(74% × 90%) = 67% of the ordinary share capital in Z Limited through its partnership share, and
a further 10% from its own holding.
Therefore 77% of Z Limited’s ordinary share capital is beneficially owned directly by Y Limited.
This is enough to create a group relationship for group relief between Y and Z.