HMRC SDLT: SDLTM34260 – Special provisions relating to partnerships: Application of exemptions and reliefs

Special Provisions Relating to Partnerships

This section of the HMRC internal manual outlines the application of exemptions and reliefs for partnerships. It provides guidance on the special provisions that apply to partnerships under UK tax law.

• Explains the criteria for partnerships to qualify for specific exemptions.
• Details the reliefs available to partnerships and their application process.
• Includes examples to illustrate the application of these provisions.
• Offers insights into the legislative framework governing partnerships.

SDLTM34260 – Special provisions relating to partnerships: Application of exemptions and reliefs

When a partnership owns property, it may sometimes transfer this property to one or more partners. This can trigger certain rules regarding stamp duty land tax (SDLT). Specifically, when parts of the property involved are located in different areas, some of which may qualify as disadvantaged areas, special considerations come into play. This section clarifies the provisions for determining how much of the property’s value falls within a disadvantaged area and how this affects the SDLT charged.

Understanding Disadvantaged Areas

Disadvantaged areas are specific regions that receive particular financial support or relief due to economic hardship or other factors. When a property is located in these areas, there may be exemptions or reductions in stamp duty land tax. Knowing whether a property is in a disadvantaged area can significantly impact the amount of tax that is owed during a transfer between partners in a partnership.

Key Provisions in Paragraph 26(5)

According to paragraph 26(5) of the relevant rules:

• If part of the partnership property is located in a disadvantaged area and another part is not, the proportion of the property’s value that is exempt from tax will depend on how much of the property is in the disadvantaged area.
• You need to assess the total market value of the relevant property.
• On a fair basis, determine the value of the section of the property that sits in the disadvantaged area.
• Also, assess how much of the value is attributable to the parts of the property located outside the disadvantaged area.
• The value attributed to the disadvantaged area is considered the disadvantaged area proportion.
• The value attributed to the property outside the disadvantaged area is the advantaged area proportion.

Application in Land Transfers

This proportional method is not only applicable when circumstances in paragraph 14 apply, but also when paragraph 17 applies. When transferring a chargeable interest in land that spans both disadvantaged and advantaged areas, the same valuation principles apply:

• If land with a chargeable interest is partly in a disadvantaged area and partly outside, the SDLT owed will be calculated based on the proportional values of each section.
• This means that to find out the SDLT liability, you will need to carefully consider the property valuation and the location of each part of the land.

Example Scenario

Consider a partnership that owns a piece of land with a total market value of £500,000. The land is situated partly in a disadvantaged area and partly outside it. After a thorough evaluation, it is determined that:

• The part of the land in the disadvantaged area is valued at £200,000.
• The part of the land outside the disadvantaged area is valued at £300,000.

In this case:

• The disadvantaged area proportion is £200,000.
• The advantaged area proportion is £300,000.

To calculate the SDLT owed, the partnership would apply the relevant tax rates to each proportion separately, considering possible exemptions or reliefs available for the disadvantaged area value.

Important Considerations

When determining the market value and applying the proportions, several factors should be kept in mind:

• The definition of ‘market value’ may need clarification. Typically, this refers to the price that land would sell for on the open market, assuming both buyer and seller act willingly and are knowledgeable about the transaction.
• It is vital to apply a ‘just and reasonable basis’ for determining the proportions. This means that valuations should be well-supported, reflecting realistic and widely-accepted methods of property valuation.
• Different areas may have different levels of support or relief, so it is essential to consult local regulations or seek professional advice if unsure about a specific region’s status.

Recording Partnerships and Land Transfers

All transfers of property within a partnership must be properly documented to comply with tax regulations. This includes:

• Maintaining records of valuations, including how the figures for each proportion were derived.
• Documenting the agreement made by partners regarding the property transfer and how the corresponding values were calculated.
• Filing the correct SDLT return and paying any tax due within the timeframe specified by HMRC.

Consulting Professional Advice

Given the complexities involved in property transfers within partnerships and the implications of disadvantaged areas, consulting with a tax professional or legal advisor is advisable. They can help ensure that valuations are accurate, that tax reliefs are maximized, and that all compliance requirements are met.

Conclusion

Keep in mind that understanding the specific provisions and correctly applying the rules regarding disadvantaged areas can lead to significant tax savings for partnerships involved in property transactions. Therefore, being clear on these matters is vital to effective property management and financial planning for partnerships.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM34260 – Special provisions relating to partnerships: Application of exemptions and reliefs

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