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I have retied from my business which was a 50:50 partnership,

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I have retied from my business which was a 50:50 partnership, non incorperated. Prior to my retirement any tax due was drawn down from my capitol account. After retirement it has been drawn down from my capitol account, and also deducted from the value of my 50% share of the business that my partner has to pay me to buy me out. I would just like to make sure the correct procedure.
Submitted: 2 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 2 years ago.
Hello and welcome to the site. Thank you for your question.

Please advise if you had agreed a valuation figure to be used for buy out/settlement purposes.

Many thanks
Customer: replied 2 years ago.

yes we have an agreed buy out , After i retired , income tax payments have been deducted from my capitol account as before , and the business has paid the income tax bill, as before i retired , but now the tax paid by the business for while i was working has also been deducted from the buy out figure

Expert:  taxadvisor.uk replied 2 years ago.

Ross, thank you for your reply.

It would be normal to make adjustment to capital account for tax paid on profits, if paid out of the business account and not by partners out of their personal funds.

What you have to establish is
- was amount agreed at the time of buy out before any impending tax on the profits while you were still a partner, or
- did the amount include provision for tax payment to be made after buy out but relating to pre buyout profits.

You have to satify that the tax to be paid has not been double counted. Ask your ex partner of the calculations in arriving at buy out price

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond. Please only rate it if my answer is acceptable to you.

taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4930
Experience: FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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Expert:  taxadvisor.uk replied 2 years ago.
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