HMRC SDLT: Example: Transfer of Property from Partnership to Corporate Subsidiary Explained
Transfer of Chargeable Interest in a Corporate Partnership
This example explains the transfer of a chargeable interest from a partnership consisting entirely of corporate bodies. Company X owns two subsidiaries, Company A and Company B, which hold interests in a partnership. The partnership transfers property to Company B, and the transaction is evaluated under specific tax provisions to determine applicable tax considerations and potential reliefs.
- Company A holds a 20% interest, and Company B holds an 80% interest in the partnership.
- The partnership transfers property valued at £5 million to Company B for £1 million.
- Company B is identified as the relevant owner and corresponding partner.
- The lower proportion for Company B is determined to be 80%, based on its partnership share.
- Since the lower proportion exceeds 75%, Para 24 applies, and the chargeable consideration is the market value of £5 million.
- Company B may claim group relief under Schedule 7 of the Finance Act 2003, modified by Para 27.
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Read the original guidance here:
HMRC SDLT: Example: Transfer of Property from Partnership to Corporate Subsidiary Explained
When a partnership made up entirely of companies transfers a property chargeable interest, understanding the rules around Stamp Duty Land Tax (SDLT) is important. This article explains a specific scenario involving Company X and its two subsidiaries, Company A and Company B, focusing on how the process works and what it means for tax liabilities.
Background of the Companies
- Company X: The parent company.
- Company A: A 100% subsidiary of Company X, holding a 20% interest in a partnership.
- Company B: A 100% subsidiary of Company X, holding an 80% interest in the same partnership.
The Property Transfer
In this scenario, the partnership transfers a property with a market value of £5 million to Company B for £1 million. This transfer triggers specific SDLT rules, particularly Paragraph 18, which involves transfers between partnerships when all partners are bodies corporate (i.e., companies).
Determining the SDLT Position
To understand the tax implications, we need to follow a series of steps that assess the ownership structure and the interests involved.
Step One: Identifying Relevant Owners
– Relevant Owner: Company B is identified as the relevant owner.
– Reason: Immediately after the transaction, Company B will have a share of the chargeable interest, and just before the transaction, it was a partner in the partnership.
Step Two: Identifying Corresponding Partners
– Corresponding Partner: In this case, Company B is its own corresponding partner.
– Reason: Company B was a partner just before the transaction and is the relevant owner.
– Note: Company A cannot be considered a corresponding partner as it is not an individual; it is also a company.
Step Three: Assessing Chargeable Interest After the Transaction
– After the transfer, Company B is entitled to 100% of the chargeable interest.
Step Four: Establishing the Lower Proportion
– Lower Proportion: This is determined by comparing two figures:
– Proportion of chargeable interest attributable to the partner (Company B) is 100%.
– Partnership share attributable to the partner (Company B) is 80%.
– Conclusion: The lower proportion is 80%.
Step Five: Summing the Lower Proportions
– Since there is only one relevant owner (Company B), there is no need to add multiple proportions.
– Therefore, the total of the lower proportions is 80.
Applying Stamp Duty Land Tax Rules
In this case, since the lower proportion (80%) is greater than 75%, the provisions under Paragraph 24 apply. This means that the chargeable consideration for SDLT purposes is equal to the market value of the interest being transferred.
– Market Value: The property’s market value is £5 million.
Additionally, because Company B and Company A are grouped companies, provisions from Schedule 7 of the Finance Act 2003 come into play. These provisions are modified by Paragraph 27, as highlighted in Paragraph 25(2), which may allow Company B to claim group relief for SDLT.
Implications of Group Relief
Grouping can provide significant relief on SDLT, allowing companies within the same corporate group to offset each other’s tax liabilities under certain conditions. For companies like Company B, this could lead to tax savings depending on their combined financial positions.
Final Considerations
When dealing with property transactions in partnerships consisting solely of companies, it’s essential to follow the steps set out in the SDLT rules, taking particular note of proportional ownership and the implications of any group structures.
Understanding the treatment of property transfers, especially how to identify owners and establish the correct proportions, is crucial for ensuring compliance and maximising tax relief opportunities.
If you’re involved in a similar transaction, consider consulting with a tax professional to navigate these complexities and ensure the correct SDLT treatment is applied.
For more detailed advice on specific scenarios, the guidance can be referenced further in official HMRC documents, such as SDLTM33850, which offers examples of similar cases for better understanding and application of the rules.
Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: Example: Transfer of Property from Partnership to Corporate Subsidiary Explained
