HMRC SDLT: SDLTM33760 – Example 1 – application of detailed provisions

Principles and Concepts of SDLTM33760

This section of the HMRC internal manual provides an example of the application of detailed provisions related to SDLTM33760. It outlines the specific principles and concepts used in this context.

  • Focuses on the application of detailed tax provisions.
  • Provides a practical example for better understanding.
  • Part of the HMRC internal manual for tax guidance.
  • Helps in interpreting and applying tax laws effectively.

Application of Detailed Provisions for SDLT

This article explains how to calculate the chargeable interest in a partnership transferring property to one of its partners. We’ll break down the steps clearly with examples to illustrate the process for Stamp Duty Land Tax (SDLT) purposes.

Context of the Transaction

In this scenario, we are dealing with a partnership owned property, which is a freehold property that the partnership is transferring to one of its partners, who we’ll call Partner A. There are also two other partners, Partner B and Partner C. It’s important to note that none of the partners are connected to one another as defined by Schedule 15 which determines relationships for tax purposes. Additionally, Partner A holds a 30% share of the profits from the partnership.

Steps to Determine the Relevant Ownership Proportion

The calculation involves determining the lower proportions according to specific legal paragraphs, particularly Paragraph 18. The steps are outlined as follows:

Step One: Identify Relevant Owners

  • In this case, Partner A qualifies as a relevant owner because, immediately following the transaction, they will hold a stake in the chargeable interest. Prior to the transaction, Partner A was also a partner in the partnership.

Step Two: Identify Corresponding Partners

  • Partner A serves as their own corresponding partner. Since they were already a partner before the transaction and now will be the relevant owner, there’s a direct relationship for this purpose.

Step Three: Determine Chargeable Interest Ownership Post-Transaction

  • After the transaction, Partner A will have entitlement to 100% of the chargeable interest based on this transfer.

Step Four: Calculate the Lower Proportion

  • In this case, we consider what portion of the chargeable interest belongs to Partner A. We compare two values:
    • 100%, which represents the entirety of the chargeable interest after the transaction.
    • 30%, which captures Partner A‘s existing share in the partnership.
  • The lower of these two figures is 30%, since it’s the lesser value.

Step Five: Total the Lower Proportions

  • Because there is only one relevant corresponding partner, Partner A, there’s no need to sum various lower proportions; you simply use the figure from step four.
  • Thus, the total lower proportion totals 30.

Calculating SDLT Chargeable Consideration

Partner A is deemed to acquire an additional interest in the property, leading to a calculation for SDLT purposes:

  • The market value of the chargeable interest transferred is subject to consideration for SDLT calculation. Since the proportion held by Partner A is 100% but only 30% reflects their prior stake, we evaluate this as follows:
  • The amount charged as consideration is calculated as: 100% – 30%, which equals 70%.

This 70% reflects the additional portion of the chargeable interest that Partner A acquires, and it matches the share of the interest that was previously held by Partner B and Partner C.

Summary of Example

In this situation, the answer to how the SDLT is charged can be summarised into these final points:

  • Partner A receives full ownership post-transaction.
  • The original partnership share of Partner A was 30%.
  • As a result, the 70% is deemed to be the amount chargeable for SDLT calculation purposes.

This example illustrates the straightforward process for calculating ownership and SDLT liabilities under specific partnership structures and properties. It emphasises the use of ownership shares and straightforward mathematical comparisons to determine tax obligations, providing clarity for partners involved in property transfers.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM33760 – Example 1 – application of detailed provisions

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