Read the original guidance here:
HMRC SDLT: SDLTM33820 – Transfer of a chargeable interest from a partnership to a partnership – Example 1

Transfer of Land Between Partnerships

This guidance explains the process of transferring land between partnerships and how to calculate the Stamp Duty Land Tax (SDLT) involved in such transfers. We will break down the steps involved in this type of transaction using a clear example.

Scenario Overview

Partnership 1 is transferring some land it owns to Partnership 2. In Partnership 1, there are four equal partners: A, B, C, and D. In Partnership 2, A owns 50%, B owns 25%, and E owns 25%. A, B, C, D, and E are not related.

This situation involves both a transfer from a partnership to a partner and a transfer to a partnership from a partner. As a result, we need to apply specific rules outlined in Paragraphs 10 and 18 of the SDLT guidance.

Understanding Paragraphs 10 and 18

When both Paragraphs 10 and 18 apply to a transaction, the chargeable amount is based on the higher of the two calculations provided in these paragraphs. The calculation processes for each paragraph will be carried out separately.

Calculating Chargeable Consideration Using Paragraph 10

Step 1: Identify Relevant Owners

• A is a relevant owner because he is entitled to a share of the chargeable interest before and after the transaction.
• B is also a relevant owner for the same reason as A.

Step 2: Identify Corresponding Partners

• A is his own corresponding partner since he remains a partner after the transaction.
• B is also his own corresponding partner for the same reason.
• E cannot be a corresponding partner because he is not connected to a relevant owner.

Step 3: Determine Chargeable Interest Before the Transaction

• A owns 25% of the chargeable interest before the transaction, and since he has one corresponding partner, this full percentage is attributed to him.
• B also owns 25% of the chargeable interest before the transaction, and this full percentage is attributed to him as well.

Step 4: Calculate the Lower Proportions

• For A:
  • Chargeable interest proportion: 25%
  • Partnership share: 50%
  • Lower proportion is 25%.
• For B:
  • Chargeable interest proportion: 25%
  • Partnership share: 25%
  • Lower proportion is 25%.

Step 5: Calculate Total Chargeable Consideration

Add the lower proportions together:

• 25% (A) + 25% (B) = 50%

The chargeable consideration is calculated as:

Chargeable consideration = MV x (100 – SLP)%

So, in this instance, it is 50% of the market value (MV).

Calculating Chargeable Consideration Using Paragraph 18

Step 1: Identify Relevant Owners

• A is a relevant owner after the transaction because he is entitled to some of the chargeable interest.
• B is also a relevant owner after the transaction for the same reason.

Step 2: Identify Corresponding Partners

• A is his own corresponding partner as he is a partner after the transaction.
• B is also his own corresponding partner after the transaction.
• E still cannot be a corresponding partner as before because he is not connected to a relevant owner.

Step 3: Determine Chargeable Interest After the Transaction

• A owns 50% of the chargeable interest after the transaction. Since he has one corresponding partner, this full amount is attributed to him.
• B owns 25% of the chargeable interest after the transaction, and this full amount is attributed to him.

Step 4: Calculate the Lower Proportions

• For A:
  • Chargeable interest proportion: 50%
  • Partnership share: 25%
  • Lower proportion is 25%.
• For B:
  • Chargeable interest proportion: 25%
  • Partnership share: 25%
  • Lower proportion is 25%.

Step 5: Calculate Total Chargeable Consideration

Add the lower proportions:

• 25% (A) + 25% (B) = 50%

The chargeable consideration formula applies again:

Chargeable consideration = MV x (100 – SLP)%

This again results in 50% of the market value (MV).

Final Calculation and Application

In this example, both calculations performed under Paragraphs 10 and 18 yielded the same result. Therefore, the Stamp Duty Land Tax charge applied is 50% of the market value of the properties transferred to Partnership 2.