UK: Interests held by managing directors and partners of consulting firm not respected as capital interests (Upper Tribunal decision)
Mixed member rules also applied to reallocate income to managing directors and partners.
Share
february 5, 2026
The Upper Tribunal held in BCG Partnership that:
- Certain “capital interests” in the taxpayer, a consulting firm, held by managing directors and partners were not, in fact, capital or goodwill. Thus, income recognized upon the sale of such interests constituted taxable miscellaneous income and not capital gain.
- The mixed member rules applied to the taxpayer’s incentive program such that profits were to be reallocated from the taxpayer’s corporate member to the managing directors and partners.
- Certain penalty assessments based on the taxpayer’s “carelessness” were valid.
The First-tier Tribunal had held in favor of HMRC with respect to the first and third issues, but in favor of the taxpayer with respect to the second issue. The Upper Tribunal overturned the lower court’s decision with respect to the second issue, however, and held in favor of HMRC with respect to all three issues.
Read a February 2026 report prepared by the KPMG member firm in the UK