Taxes Consolidation Act 1997 section 426

Partnerships involving companies: effect of arrangements for transferring relief

Section 426 prevents abuse of group relief provisions where companies are members of partnerships by restricting the use of partnership losses and allowances to within the partnership itself.

• Where artificial arrangements exist between partners, a company's share of partnership losses and charges on income can only be set off against its profits from the partnership trade (its "several trade") — not against profits from other sources.
• Equally, trading losses from outside the partnership cannot be used to shelter a company's share of partnership profits where such arrangements are in existence.
• The restriction is two-directional: neither partnership losses nor external losses can cross the boundary into the other's profits where artificial arrangements are in place — the losses and profits are, in effect, ring-fenced within the partnership.
• Where a company's share of partnership profits or losses arises under Case IV or Case V of Schedule D, those profits or losses are treated as if they arose from a separately carried-on trade, with Case V capital allowances treated as allowances made in taxing that trade.