HMRC SDLT: Partnership Property Transfer: SDLT Calculation for Partner A’s Acquisition Explained

Application of SDLT Provisions in Partnership Property Transfer

This example explains how Stamp Duty Land Tax (SDLT) provisions apply when a partnership transfers a property interest to one of its partners. The scenario involves a partnership with three partners, where one partner receives the entire property interest. The calculation of the chargeable proportion for SDLT purposes is detailed through a series of steps.

• A partnership owns a property and plans to transfer it to Partner A, who holds a 30% share in the partnership’s income.
• Partner A is identified as the relevant owner because he will own the property after the transfer and was a partner before the transaction.
• Partner A is also his own corresponding partner, as he was a partner before the transaction.
• After the transaction, Partner A will own 100% of the property interest, which is apportioned entirely to him.
• The lower proportion is determined by comparing the chargeable interest (100%) and the partnership share (30%), resulting in a lower proportion of 30.
• The SDLT chargeable proportion is calculated as 70%, representing the interest previously held by Partners B and C.

“`

Understanding SDLTM33760 – Example 1: Transfer of Chargeable Interest in a Partnership

This guidance explains a situation involving a partnership and the principles around transferring a chargeable interest, particularly focusing on the calculation of Stamp Duty Land Tax (SDLT). In the example provided, we have three partners, A, B, and C, who own a property as part of their partnership. Below we will break down the steps taken in this scenario with straightforward explanations and definitions.

Background Scenario

In this example, the partnership owns a chargeable interest, which is a freehold property. Partner A wants to transfer this property to themselves as an individual. There are two other partners, Partner B and Partner C. Importantly, A, B, and C are not connected to each other in terms of tax obligations, as defined in schedule 15. Partner A receives 30% of the profits from the partnership. Understanding the share and its implications is essential for calculating SDLT.

Step-by-Step Breakdown

To determine the amount of SDLT payable, we have a series of steps to follow. We will examine each step to understand how the lower proportions are computed:

Step One: Identifying the Relevant Owner(s)

First, we need to establish who the relevant owner is. Partner A qualifies as a relevant owner because:

• After the property transfer, Partner A is entitled to a part of the property.
• Before the transfer, Partner A was already a partner in the partnership.

Step Two: Identifying the Corresponding Partner(s)

Next, we identify the corresponding partner for Partner A. In this case, Partner A is also their own corresponding partner because:

• Immediately before the transfer, Partner A was a partner.
• Partner A is the relevant owner of the property.

Step Three: Determining Ownership Right After the Transaction

At this stage, we clarify how much of the property Partner A owns after the transaction. In our scenario:

• Partner A owns 100% of the chargeable interest in the property after the transfer.

Because Partner A is the only corresponding partner, the entire share of ownership is given to them.

Step Four: Calculating the Lower Proportion

Now we calculate the lower proportion for each corresponding partner. Since there is only one, Partner A, we need to analyze two figures:

• The proportion of the chargeable interest attributable to Partner A after the transfer, which is 100%.
• The partnership share attributable to Partner A, which is 30% based on their share of profits.

In this instance, we compare the two figures and take the smaller one:

• 100% (of the chargeable interest) vs. 30% (of the profits)
• The lower proportion is therefore 30%.

Step Five: Summing Up Lower Proportions

Since there is only one corresponding partner, we do not need to add any additional lower proportions together. Consequently, the sum of all applicable lower proportions remains 30%.

Final Calculation for SDLT Consideration

To find out how much of the market value of the property is considered chargeable for SDLT purposes, we need to calculate:

• Take the total ownership proportion, which is 100%.
• Subtract the lower proportion we’ve calculated, which is 30%.

This means the proportion of the property that will be considered for SDLT is:

• (100% – 30%) = 70%.

This value of 70% reflects the additional share in the property acquired by Partner A, and it is identical to what Partners B and C previously held through their stakes in the partnership.

Key Concepts Explained

Below are some important terms and ideas that have been covered in this guidance:

• Chargeable Interest: This refers to rights held by the owners over property. In this context, it specifically means ownership of a freehold property that is subject to SDLT when transferred.
• Relevant Owner: This term refers to individuals or entities that have entitlement to a chargeable interest. It is crucial in establishing who is liable for SDLT after a transaction.
• Corresponding Partner: This represents the original partner who is associated with the relevant owner, indicating how ownership can be shared or changed among partners in a transaction.
• Proportion of Chargeable Interest: This represents the percentage of ownership each partner has in the property and affects calculations related to SDLT.

By understanding these steps and concepts, partners in a property-owning partnership can navigate the tax implications of property transfers more clearly and accurately.

For further information about detailed provisions involving SDLT calculations, you can refer to the guidance found at SDLTM33760 – Example 1 – application of detailed provisions.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: Partnership Property Transfer: SDLT Calculation for Partner A’s Acquisition Explained

View all HMRC SDLT Guidance Pages Here