Retiring partners are entitled to remove their capital from the business. As a result, the profits may be split among the remaining partners unless they continue to use the retiring partner's partnership property.
Remaining partners and the retiring partner remain liable for the debts of the old partnership unless the remaining partners agree to take on the debts of the retiring partner. This does not include income tax and National Insurance contributions, as partners are responsible for paying these individually.
The partners in the old partnership have the right to use partnership property to pay outstanding debts, and to split what remains between themselves in accordance with the partnership agreement.
Do I need to inform HMRC a partner has left?
When a partner leaves they still need to submit a Self Assessment tax return for the year they leave. You must record the changes in the partnership tax return and in each partner’s Self Assessment return. If your partnership is VAT-registered you must tell HM Revenue & Customs (HMRC) when a partner leaves within 30 days. You may face financial penalties if you don’t.
It is advisable to tell your solicitor and your accountant, and the partnership's bank should be informed if there are any guarantees provided by the partners.
Reporting changes to limited partnerships
For limited partnerships and limited liability partnerships (LLPs), you need to inform Companies House when a member joins or leaves. For more information, see running a company or partnership and reporting changes to Companies House.
The retiring partner must give notice in writing of their retirement where the partnership was created by a deed.