Read the original guidance here:
HMRC SDLT: Guide on Partnership Chargeable Interest Transfers and Related Provisions with Examples

Special Provisions Relating to Partnerships: Transfers of a Chargeable Interest from a Partnership – Para 18

Overview – Para 18

When a partnership transfers a chargeable interest, specific provisions apply. This is important because the rules governing how stamp duty land tax (SDLT) is calculated can differ from standard transactions. A chargeable interest typically includes interests in land or property that can be sold or assigned.

Chargeable Consideration – Para 18 (2)

In the context of partnerships, chargeable consideration refers to the value exchanged during the transfer of a chargeable interest. This value may involve money or other property.

– If the partners are transferring the property within the partnership, the total value included for SDLT purposes will be based on:
– The market value of the property at the time of the transfer
– Any additional consideration that may be paid

Sum of the Lower Proportions – Para 20

When determining the chargeable consideration, it is essential to look at the lower proportions of the partnership shares involved. This helps calculate SDLT fairly, considering all partners’ contributions.

Example 1

Imagine a partnership consists of two partners with shares divided as follows:
– Partner A owns 60%
– Partner B owns 40%

If the property is valued at £200,000, the value of shares at the time of the transfer is:
– Partner A: £120,000 (60% of £200,000)
– Partner B: £80,000 (40% of £200,000)

The sum for SDLT would consider the lower proportion of Partner B for purpose of SDLT tax calculation.

Example 2

Consider a different partnership with three partners:
– Partner C owns 50%
– Partner D owns 30%
– Partner E owns 20%

If the property in this partnership is valued at £300,000:
– Partner C: £150,000 (50% of £300,000)
– Partner D: £90,000 (30% of £300,000)
– Partner E: £60,000 (20% of £300,000)

Again, the SDLT coverage will look at values from the lower proportions.

Sum of the Lower Proportions – Detailed Provisions

To apply SDLT rules, partnerships should calculate the sum by considering the lower proportions of each partner’s stake relative to the property’s total value. This is significant as it ensures that each partner’s share is equitably recognised during the transfer process.

Example 1 – Application of Detailed Provisions

In a partnership with two partners where:
– Partner F has a 70% share
– Partner G has a 30% share in a property worth £500,000,
the applicable SDLT would include the lower proportion from Partner G, valued at £150,000.

Example 2 – Application of Detailed Provisions

If a partnership has:
– Partner H (40%)
– Partner I (30%)
– Partner J (30%)
and the property is worth £600,000, SDLT calculations would focus on the lower amounts: Partner I and Partner J would be considered, which both value their shares at £180,000.

Partnership Share for the Purposes of Para 20

For some transactions, understanding what makes up a partner’s share is crucial. The share of a partner in a partnership is not just based on the percentage of ownership but also on the rights attached to that share, as it may differ from one partnership to another.

Chargeable Consideration Includes Rent – Para 19

In some cases, when a partnership agreement includes rents or lease payments as part of the transaction, these amounts are included in the chargeable consideration for SDLT.

Example

Take a partnership that shares a property valued at £400,000. Suppose the partnership agreement states that Partner K pays an annual rent of £20,000. Depending on the agreement’s terms, this rent could form part of the chargeable consideration in the SDLT.

Transfer of a Chargeable Interest from a Partnership to a Partnership – Para 23

When one partnership transfers an interest in property to another partnership, SDLT provisions are still relevant. Both partnerships must comply with SDLT rules, making it essential to evaluate how this transfer should be handled to ensure proper compliance.

Example 1

Suppose Partnership 1 transfers a commercial property to Partnership 2, valued at £1,000,000. The SDLT due would need calculation based on the chargeable consideration agreed upon between both partnerships.

Example 2

Consider a situation where Partnership A, which owns a lease on a property, shifts that lease to Partnership B. If the lease carries an annual consideration of £30,000, this also forms part of the overall chargeable consideration.

Transfer of a Chargeable Interest from a Partnership Consisting Wholly of Bodies Corporate – Para 24

In situations where the transfer involves partnerships consisting entirely of corporate entities, specific rules apply. These transfers have their own SDLT calculations and considerations, bringing additional complexity to the process.

Example 1

If Company X is wholly owned by Partnership A and is transferring a chargeable interest to another corporate partnership, the transaction requires careful assessment in light of existing SDLT regulations.

Example 2

For instance, if Partnership B consists of multiple corporate entities transferring a factory valued at £2 million to another partnership, the chargeable consideration’s assessment should follow precise guidelines before finalised SDLT due.

Example 3

If a corporate partnership transfers an asset to a non-corporate partnership, both parties must understand the valuation and consider how long-term agreements or encumbrances may impact the chargeable consideration.