Read the original guidance here:
HMRC SDLT: SDLTM34250 – Special provisions relating to partnerships: Application of exemptions and reliefs

Guidance on SDLT Exemptions and Reliefs for Partnerships

This article explains the special rules regarding Stamp Duty Land Tax (SDLT) for partnerships, especially focusing on properties located in disadvantaged areas. We’ll clarify how certain exemptions and reliefs might apply depending on the type of land involved in a transaction.

Key Principles of SDLT and Partnerships

When partnerships buy or transfer property, they might benefit from various exemptions and reliefs under SDLT rules. Here are important points to understand:

• Disadvantaged Areas: Specific properties must be located in disadvantaged areas to qualify for certain SDLT exemptions. Important references are made to paragraphs in the SDLT legislation.
• Chargeable Interest: This term means any interest in land that can trigger SDLT. If properties are defined as ‘chargeable interests,’ they are subject to SDLT unless an exemption applies.

Understanding Relevant Paragraphs

Two specific paragraphs are significant when discussing these exemptions:

• Paragraph 14: This applies when all partnership property that is a chargeable interest is located in a disadvantaged area.
• Paragraph 17: This applies when the property being transferred is a chargeable interest in land that is entirely situated in a disadvantaged area.

Both paragraphs refer to the definition of a disadvantaged area found in Paragraph 26(2) of the SDLT legislation. Being situated in such an area is vital for exemptions to be considered valid.

Residential Properties and SDLT Exemptions

Another important aspect is how exemptions work for residential properties:

• If all the land involved in the transaction is residential and if the chargeable consideration is £150,000 or less, then the transaction is exempt from SDLT under FA03/Sch6/para5.
• This means partnerships can participate in residential property transactions without incurring SDLT costs, provided they adhere to the chargeable consideration limit.

Mixed-use Properties

In cases where the property consists of both residential and non-residential elements, the treatment of SDLT differs:

• The residential part must be calculated fairly, taking a just and reasonable approach.
• If the relevant chargeable consideration related solely to the residential portion is £150,000 or less, that portion won’t be counted as chargeable consideration for the purposes of SDLT.

This applies as outlined in Paragraph 26(4) of the SDLT legislation. It allows partnerships to evaluate their SDLT liability accurately in mixed-use transactions.

How to Apply These Principles

Here’s how partnerships can apply these principles practically:

• First, determine if the property is located in a disadvantaged area. This is essential for the application of both Paragraph 14 and Paragraph 17 exemptions.
• If the property is entirely residential, check if the total amount paid (chargeable consideration) is £150,000 or below. If it is, the transaction does not incur SDLT.
• For mixed-use properties, separate the residential and non-residential values. Calculate the residential value to ascertain if that part stays within the £150,000 limit, qualifying it for SDLT relief.

Examples of Application

To illustrate how these principles can work in real scenarios, consider the following examples:

• Example 1: A partnership buys a plot of land located entirely in a disadvantaged area for £100,000. As all conditions for Paragraph 14 are met, the purchase qualifies for SDLT exemption.
• Example 2: A partnership purchases a mixed-use property for £250,000. The residential value is assessed to be £140,000 and non-residential value £110,000. Since the residential chargeable consideration is under £150,000, that portion does not incur SDLT, although the partnership will need to figure out the SDLT obligations concerning the non-residential element.
• Example 3: A transaction where partnerships buy residential property in two separate disadvantaged areas for £120,000 each will be exempt from SDLT as both transactions are under the allowable limit and meet the relevant criteria.

Compliance and Record Keeping

Partnerships should ensure they maintain records demonstrating that they qualify for these SDLT exemptions. Here are steps to ensure compliance:

• Keep documentation that clearly shows the total chargeable consideration for property transactions.
• Make sure to gather evidence proving that properties are located in disadvantaged areas.
• Ensure calculations to separate residential and non-residential components are clear and thorough.

Consultation and Further Guidance

If partnerships are unsure about how these exemptions apply, or if there are specific questions about SDLT obligations, consulting a tax professional or advisor is recommended. They can provide tailored advice according to particular circumstances or property details.

More information about specific paragraphs or guidance can be found throughout the relevant SDLT documentation.