Each of the LPs operates as an investment fund that calls capital from time to time to make new investments, and makes distributions from time to time when such underlying investments are realised in part or in full. My capital contributions to the LPs have been made from mixed funds, and the distributions from the LPs have been received into mixed funds.
In preparation for a possible mixed fund cleansing, I am now trying to determine the composition of both my capital accounts of these LPs and of my mixed funds post LP distributions (and therefore of the LP distributions).
The capital accounts are calculated on a US GAAP basis as: capital contributions - distributions + net realised gain (loss) + other portfolio income - operating expenses = capital account at cost + unrealised gain (loss) = capital account at fair value
I am wondering if I should look at the capital accounts at fair value or at cost to determine the composition of my capital accounts and therefore of my distributions. I am thinking 'at cost' is the right way as an unrealised gain is not typically a chargeable event for me as a limited partner. Is that correct?
And can I assume that:
- any capital contributions I make from a mixed fund keep the same % composition as that mixed fund i.e. this is a simple 'offshore transfer'
- any distributions during the first year of the partnership's life are made from the initial year 1 capital contributions only
- right before year end, that partnership's capital account is increased with the mutations in that year's capital account i.e. chargeable gains and income are added and expenses are deducted
- this creates a new starting balance for year 2 - which now consists of capital (itself from diff mixed fund sources) and various forms of partnership income / gains / expenses
- any distributions during year 2 of the partnership's life now consist of the same proportionate balance as the year 1 ending balance (absent any new capital contributions)
- and so on and so forth
Also can I confirm that these LP distributions per se do not normally give rise to any UK tax obligation, and that instead my UK tax due is calculated on the basis of the K-1 (form 1065) "Partner’s Share of Current Year Income,
Deductions, Credits, and Other Items" entries? note I have confirmed that this is the US tax position for this form of partnership. This is obviously not applicable while I am on the remittance basis but when moving to the arising basis soon, this will become highly relevant.
Lastly the US partnership accounts are all on a calendar year basis. Can I make a simple 9/12 + 3/12 transposition to UK tax years?