Partnership property is whatever the partners bring into the firm’s stock or acquire on the firm’s account or for its business; it must be held and used only for partnership purposes, even though in England, Wales and Northern Ireland the title sits in the names of individual partners. Assets a partner merely lets the firm use stay that partner’s own. Goodwill the firm generates is normally a partnership asset, and what happens to it when a partner leaves depends almost entirely on the partnership agreement.

What counts as partnership property?

Section 20(1) of the Partnership Act 1890 defines partnership property as all property, and rights and interests in property, originally brought into the partnership stock or acquired, by purchase or otherwise, on account of the firm or for the purposes and in the course of the partnership business. It must be held and applied by the partners exclusively for the purposes of the partnership and in accordance with the partnership agreement. Section 21 adds a presumption: unless a contrary intention appears, property bought with money belonging to the firm is deemed to have been bought on account of the firm.

The Act does not give a list, and the Official Receiver’s technical guidance (paragraph 52.31) says the question is largely decided by case law and is generally left to the partners to agree. Where there is no agreement, the factors taken into account include the source of the money used to buy the asset, the purpose of the purchase, and how the asset has been used, dealt with and treated. Section 19 lets all the partners vary that position by consent, express or inferred from a course of dealing.

HMRC’s CG27200 takes the same fact based approach for capital gains, distinguishing assets owned by the partnership from “other assets” the firm uses but partners own.

Why does it make a difference who owns an asset?

  • Growth in value. The ACCA’s partnership factsheet notes that where partnership property rises in value the increase belongs to the firm, whereas growth in an asset owned by an individual partner generally belongs to that partner. Without an agreement, section 24(1) then shares that capital growth equally.
  • Creditors. The same factsheet explains that when a firm is insolvent and partners are bankrupt, partnership assets go first to the firm’s creditors, ahead of a partner’s personal creditors. The Official Receiver’s guidance says partnership property effectively forms a trust in favour of the partnership creditors and does not vest in a bankrupt partner’s trustee.
  • Dissolution. Under section 39 every partner can insist that partnership property is applied first in paying the firm’s debts, with the surplus then paid out to the partners. Section 44 sets the order: outside creditors, then partners’ advances, then capital, then any residue in profit sharing ratios.
  • A partner’s private debts. Outside Scotland, section 23 prevents execution against partnership property except on a judgment against the firm; a partner’s personal creditor can only charge that partner’s interest.
  • Inheritance tax. Under section 104 of the Inheritance Tax Act 1984, as amended by the Finance Act 2026, an interest in a business within section 105(1)(a) can attract relief at 100% up to the available allowance, with 50% beyond it. Premises or plant owned personally by a partner and used by the firm fall within section 105(1)(d), which attracts relief only at 50%. See inheritance tax business relief.

Who holds the title to partnership premises?

A general partnership in England, Wales or Northern Ireland is not a legal person, so it cannot hold title in its own name. The ACCA factsheet explains that property is normally held in the names of individual partners as trustees for the partnership, with a presumption that the partners hold beneficially as tenants in common rather than joint tenants unless they agree otherwise. Section 20(2) of the 1890 Act confirms that the legal estate in real property belonging to the partnership devolves according to the general law, but in trust for the people beneficially interested.

In England and Wales section 34 of the Trustee Act 1925 limits the number of trustees of real property to four, so in a larger firm a few partners hold the legal title for everyone. Scotland differs: section 70 of the Abolition of Feudal Tenure etc. (Scotland) Act 2000 allows a firm with legal personality to own property itself, although Revenue Scotland notes that title is more commonly held by trustees for the partnership or by one partner. See Scottish partnerships and legal personality.

What about premises one partner owns and the firm uses?

This is the most common source of disputes. The ACCA factsheet stresses that the agreement should say which assets are personal and which belong to the firm, and on what terms the firm occupies or uses personal assets, for example rent, hire charges and return of the asset. It cites Barton v Morris, where a farm shown as a partnership asset in draft accounts was held not to be partnership property.

Bringing a personally owned asset into the firm has tax consequences. CG27900 says the transfer of a chargeable asset from a partner to the partnership, whether as a capital contribution or a sale, is a disposal of the part of the asset in which the partner no longer has an interest. A partner with a 25% share who contributes a building has disposed of 75% of it. A sum credited to the partner’s capital account counts as consideration, and market value applies between connected persons or where the deal is not at arm’s length.

Who owns the goodwill?

Goodwill has no statutory definition. CG68010 relies on Lord Macnaghten in IRC v Muller & Co Margarine Ltd [1901]: “the benefit and advantage of the good name, reputation and connection of a business”, “the attractive force which brings in custom”. CG68010 also says goodwill is construed by legal rather than accounting principles, and that goodwill attributable to an owner’s personal skills, such as a chef or hairdresser, does not pass to a new owner.

The Official Receiver’s guidance (paragraph 52.143) says goodwill generated by a partnership is clearly a partnership asset, but where the firm was formed to carry on an existing business, the partner who brought that business in may have a stronger claim to the goodwill. Section 29 requires every partner to account to the firm for any benefit obtained without consent from using its property, name or business connection, which protects goodwill while the partnership continues.

For capital gains, section 59 of the Taxation of Chargeable Gains Act 1992 treats partnership dealings as dealings by the partners, and Statement of Practice D12 treats each partner as owning a fractional share of each partnership asset, including goodwill (CG27150). A reduction in that share, for example when a new partner joins, is a disposal.

What happens to goodwill when a partner leaves?

The ACCA factsheet says the agreement should state whether assets are revalued in the leaving accounts and whether goodwill is included. Some agreements provide that nothing is paid for goodwill; others set a formula or a valuation method. If the agreement is silent, the default equal sharing in section 24(1) applies to capital profits, which can give an outgoing partner a share of goodwill value the others never intended to pay for.

Protection after departure also depends on the agreement. Without express terms, the factsheet notes, a former partner may set up a competing business nearby and act for former clients, although they cannot solicit the firm’s clients or present themselves as its successor. Restrictive covenants are therefore normal, and are enforceable if reasonably necessary to protect the goodwill of the continuing firm; they tend to be easier to enforce against partners than employees. The accounting entries are covered in partnership capital and current accounts, and the tax position in partners joining and leaving.

How does this work in practice?

Illustration only. Three partners run a veterinary practice in England and share profits equally. The surgery building was bought ten years ago by Partner A alone, with her own mortgage, and the firm pays her rent under a written lease. The equipment and the vans were bought from the firm’s bank account. The agreement says no payment is made for goodwill on retirement.

  • The equipment and vans are partnership property under section 21, so each partner owns a one third fractional interest for capital gains purposes.
  • The building is Partner A’s own asset. Its growth in value is hers, and a buyer of the practice must deal with her separately. For inheritance tax it falls within section 105(1)(d) rather than being part of her interest in the business.
  • If Partner A later transfers the building into the firm in return for a credit to her capital account, she disposes of two thirds of it for capital gains purposes.
  • When Partner B retires, he takes his capital and current account balances but nothing for goodwill, and his covenant not to solicit clients protects the practice.

What mistakes do partners make with property and goodwill?

  • Paying for an asset from the firm’s account while intending it to be personal, which triggers the section 21 presumption.
  • Ignoring goodwill in the partnership agreement, so equal sharing applies to the most valuable asset.
  • Moving a building into or out of the firm without considering capital gains and inheritance tax.
  • Relying on the 1890 Act default rules to stop a departing partner competing, when they give very little protection.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.