Taxation of partnership profits and closure notices

The taxpayers were financial dealers in the Investec group. They participated in transactions designed so they could exit from leasing partnerships. They said they should be taxed on the net profits from their activities deducting the costs of purchasing the partnership interests from the rentals or the sale proceeds of the rentals received while they were the relevant partners.

HMRC said the relevant costs were non-deductible or the taxpayers should be taxed on the net profits in their respective sole financial trades as well as on the entire partnership profits.

The matter proceeded to the Court of Appeal after hearings before the First-tier Tribunal and Upper Tribunal.

The first issue concerned capital contributions. Lady Justice Rose agreed with the Upper Tribunal that they were not incurred wholly and exclusively for the purposes of the taxpayers’ trades. The contributions were made at least partly for the purposes of the partnerships’ businesses ...