Partnership incentivisation plan payments are taxable

Bluecrest set up a partnership incentivisation plan (PIP) for some of its senior partners. The PIP had a commercial purpose as well as a perceived financial advantage for the partners.

Individual partners agreed to give up their prospective share of the partnership’s profits for a deferred entitlement – contingent on satisfying specified conditions - to a corresponding award of ‘special capital’ made by a corporate partner. The corporate partner was allocated the amounts foregone by the individual partners and was obliged to invest them after retention of a sum adequate to satisfy its expected liability to corporation tax and expenses in special capital from which the final awards would be made.

It was expected that when an award of special capital was made the recipient partner would not be liable to income tax because it would be a receipt of capital. In the event that it had...