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The capital gains tax consequences of inducements to a departing partner.
A partnership of four members proposes to say goodbye to one of them. A tax-paid sum will be payable by instalments over the next few years.
Is it possible for the continuing partners to pay the departing member for his share of the goodwill of the firm and thereby deliver him a sum net of 10% capital gains tax? The goodwill does not appear in the partnership books and we understand the difficulties of valuation. But if a value for the whole firm can be arrived at and if his share can cover the amount promised after tax is this plan possible without any ramifications on any other part of the firm?
Further it is proposed to transfer his considerably overdrawn capital/current account to the debit of the other partners and therefore release him from that obligation. Are there any tax consequences that we might have overlooked?
What do Taxation readers think?
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