accounts / tax treatment of funds received from being bought out

System

Hi Members

This is my first time on the forum although I have been a full member of the AAT since September 2005.

I have not been practicing accounts for a few months as I decided that accounts wasn't for me, however I have a friend who recently asked me for advice on filling out her tax return for the year ended 5/04/06. This does not pose much of problem as the partners Accountant prepared Accounts for the year, which I will split between the partners as previous years. My question is when she comes to fill in her tax return for 2006/2007 does the money she received from the other partners, when they bought her out, show in the tax return as capital gains, subject to taper relief etc., or will it be shown as earned income.

As I said I will not be filling it in but I thought I ought to pre-warn her of what to expect.

Hope someone can help
Thanks
Debbie B

System

Re:accounts / tax treatment of funds received from being bought out

Hello Debbie,

I would've thought it would be treated as a capital gain, as the other partners are giving her money for her share of the assets in the company. It would therefore not be trading income - the income is not derived from the trade of the partnership.

As ever, a sale of assets - treat as capital gain.

Can anyone else verify this?

Kate

System

Re:accounts / tax treatment of funds received from being bought out

Thank you Kate

It was my initial thought too, but the more I thought about it the more I doubted myself and I couldn't find anything in the AAT text books regarding the tax treatment of this only the accounting treatment.

Thanks again