Tax significance of partner’s retirement date

Key points

• The retirement date can be key from a tax perspective.
• The interaction of overlap relief and foreign tax credit can lead to a total loss of relief or a reduction in the rate at which relief is available.
• It is important to review the situation when a partner’s earnings decrease in the years before retirement.
• Partnerships may make a tax reserve against earnings.
• Do not overlook the tax-efficient use of personal allowances pension and other tax reliefs.

The timing of a partner’s retirement from a partnership – either limited liability or general – can give rise to unexpected tax consequences in particular for partnerships with a 30 April year end.

Partners leaving a firm close to the end of their career may be encouraged to retire at the end of a financial year to keep matters as simple as possible from an accounting point of view. However such an approach may not...