Each partner is liable to tax as an individual on his share of the income or gains of the partnership. This is described as tax transparency.
Even though a partnership is not a distinct legal entity, HMRC requires a partnership to make a single tax return of its profits which must be agreed with HMRC (as with sole traders, partnerships choose their own accounting period). Partners submit their own individual tax returns containing all income received from the partnership as well as other income receipts (including, for example, from savings, dividend and/or rental income).
Each partner is personally liable for the tax on his share of the partnership profits. Unlike with other partnership liabilities where each partner is jointly and severally liable, a partner is not liable for the tax on other partners’ shares of partnership profits.
Normal capital gains tax principles apply on disposal of a capital asset by a partnership. Each partner is treated as owning a fractional share of the asset. On disposal by the partnership, each partner is treated as making a disposal of his fractional share and will be taxed on this fractional share of any gain, subject to the availability of any reliefs available to individuals. A partner’s fractional share shall be based upon the agreed PSR or, if there is no agreed PSR, then equally in accordance with s.24(1) PA 1890.