Read the original guidance here:
HMRC SDLT: SDLTM33700 – Special provisions relating to partnerships: Transfers of a chargeable interest from a partnership – Para 18

Understanding Stamp Duty Land Tax and Partnerships

This article explains how Stamp Duty Land Tax (SDLT) works concerning partnerships, especially when a chargeable interest is transferred among partners. Understand the key terms and processes to ensure compliance with HMRC regulations.

Overview of Stamp Duty Land Tax and Partnerships

When a chargeable interest is transferred from one partnership to another, specific provisions apply. A chargeable interest refers to the right to own or use a property. This can involve various scenarios, such as a transfer of ownership within a partnership or between different partnerships.

Partnerships may consist of individuals, companies, or a mix of both. The rules outlined here apply to all types of partnerships when dealing with chargeable interests.

Chargeable Consideration

The concept of chargeable consideration is crucial when determining the SDLT due on a transaction. Chargeable consideration refers to everything that is given in return for the transfer of a property, including monetary payments and other forms of value such as rent or shares.

What Counts as Chargeable Consideration? (See SDLTM33720)

• Monetary payments made for the property.
• Any debts or liabilities assumed by the acquiring partner.
• Rent or other benefits received in connection with the property.

Lower Proportions and Examples of Transfers

In assessing SDLT on the transfer of a chargeable interest, it’s essential to understand the concept of lower proportions.

What are Lower Proportions? (See SDLTM33730)

Lower proportions refer to the smallest interest held by each partner in the property being transferred. To determine the SDLT due, the total chargeable consideration is divided by the sum of these lower proportions.

Examples of Lower Proportions

• Example 1: If Partner A has a 60% interest, and Partner B has a 40% interest in a property, the lower proportion is 40%. Therefore, the SDLT calculation will reflect this lower proportion.
• Example 2: In a different situation, if Partner A holds 70%, Partner B 25%, and Partner C 5%, the lower proportion is 5%. This will affect the SDLT calculation.

Detailed Provisions Regarding Lower Proportions (See SDLTM33750)

The detailed rules surrounding lower proportions help clarify how to calculate SDLT accurately. These include considerations for how interests are valued and how they are divided among partners.

Application of Detailed Provisions (See SDLTM33760)

• Example 1: If a property has a total value of £500,000 and Partner A’s interest is valued at £300,000, and Partner B’s at £200,000, the lower proportion relevant to SDLT could be calculated based on the interest value aligning with the percentage shares owned.
• Example 2: If Partner C enters the partnership with a 10% interest in a property worth £1,000,000, the SDLT calculation must consider their lower proportion against the others in the partnership.

Partnership Share and Para 20 (See SDLTM33780)

The determination of each partner’s share in a partnership is essential to establish how SDLT applies. A partner’s share is considered when assessing the overall interest they have in the partnership and the property.

Chargeable Consideration and Rent (See SDLTM33790)

It is important to note that chargeable consideration can also include rent on the property. This means when properties are rented out, the rent payable can affect SDLT calculations.

Example of Chargeable Consideration Including Rent (See SDLTM33800)

• Example: If a partnership sells an office building for £400,000 but also charges £50,000 in annual rent over a lease period, both the sale price and the rent must be considered as chargeable consideration.

Transferring Chargeable Interests Between Partnerships

When a chargeable interest is transferred from one partnership to another, certain rules apply to ensure that SDLT is calculated correctly. This can involve various scenarios, including full transfers or partial interests.

Example of Transfer Between Partnerships (See SDLTM33810)

• Example 1: If Partnership X transfers a property valued at £1 million to Partnership Y, the SDLT due would be based on the chargeable consideration for that transfer. Any agreed-upon debt implications or agreed benefits also factor into this consideration.
• Example 2: If in another case, a partnership decides to transfer only a 30% interest, the SDLT calculation must reflect this proportion and its value.

Transferring Chargeable Interests from a Partnership with Corporate Bodies (See SDLTM33840)

Special provisions apply when a partnership consists entirely of corporate bodies. Here, the SDLT rules adjust to account for the nature of the transferring entities.

Examples of Transfers From Corporate Partnerships

• Example 1: If a partnership made up of three companies transfers a property worth £2 million, the SDLT will be calculated as per the chargeable consideration determined by the total value of the property.
• Example 2: In another scenario, if one of the corporate partners decides to sell its 50% share of a property to another corporate partner, the SDLT due must take into account the agreed sale price of that share and any debts expressed in that arrangement.
• Example 3: If a partnership consisting of corporate bodies decides to distribute their assets evenly, each share’s value will inform the SDLT owed based on how the interests are reallocated.