Guidance on When Leases Are Not Relevant Partnership Property

When a partnership lease is ignored for SDLT partnership transfer rules

For SDLT partnership transfer rules, some partnership leases are left out when working out the tax effect of a Type A or Type B transfer. This applies only if the lease is still partnership property immediately after the transfer and all paragraph 15 conditions are met, mainly that the lease is a genuine market-rent lease with no premium or other non-rent consideration.

• The lease is ignored only if no chargeable consideration was given for the grant apart from rent, and there were no arrangements for any later non-rent payment.
• The rent payable when the lease was granted must have been market rent at that time.
• If the lease term is 5 years or less, it can qualify more easily; if it is longer than 5 years, the lease must require market-rent reviews at least once every 5 years.
• Any later variation that reduces the rent below market level can stop the exclusion from applying.
• In practice, you should check the lease, side letters, variation documents and valuation evidence to confirm the facts.
• This rule only affects whether the lease counts as relevant partnership property for these partnership transfer rules, not all SDLT issues.

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When a partnership lease is ignored for SDLT partnership transfer rules

This page explains a narrow but important SDLT rule for partnerships. Some leases held by a partnership are left out of account when working out the SDLT effect of a transfer of a partnership interest. That matters because the partnership rules can otherwise treat partnership property as relevant to a Type A or Type B transfer. The rule in paragraph 15 removes certain short or properly market-rented leases from that calculation.

What this rule is about

Under the SDLT partnership rules, special calculations can apply when a person transfers an interest in a partnership. Those rules look at partnership property and, in some cases, treat it as relevant to the tax analysis.

This page deals with an exception. If a lease meets all of the conditions in paragraph 15, it is not treated as “relevant partnership property” for either a Type A transfer or a Type B transfer, provided the lease is held as partnership property immediately after the transfer of the partnership interest.

The policy behind the rule is reasonably clear from the conditions. It is aimed at leases that look like ordinary commercial occupational leases, where the partnership is simply paying a market rent and has not given any premium or other non-rent consideration for the grant.

What the official source says

The official material says that a lease held as partnership property immediately after the transfer is excluded from relevant partnership property if four conditions are all satisfied.

The first condition is about consideration for the grant of the lease. No chargeable consideration other than rent must have been given for the grant, and there must be no arrangements in place at the time of the transfer for any chargeable consideration other than rent to be given.

In practice, this is directed at leases granted without a premium or other non-rent payment. It is not enough that no such payment has yet been made. There must also be no arrangement already in place for one to be made later.

The second condition is that the rent payable when the lease was granted must have been a market rent at that time.

The third condition deals with the lease term and rent review structure. Either:

• the lease term is 5 years or less, or
• if the term is more than 5 years, the lease must provide for rent review at least once in every 5 years of the term, and the reviewed rent must be required to be a market rent at the review date.

The fourth condition is that there must have been no change to the lease since grant that would make the rent payable less than a market rent.

The source also defines market rent. It is the rent the lease might reasonably be expected to fetch on the open market at the relevant time. A review date is the date from which the reviewed rent becomes payable.

What this means in practice

If all four conditions are met, the lease is ignored for the purpose of deciding what counts as relevant partnership property in a Type A or Type B partnership transfer.

That can materially affect the SDLT outcome. A lease that falls within paragraph 15 does not feed into the partnership property side of the transfer analysis in the same way as other partnership-held land interests.

The conditions are strict. A lease will not qualify just because it broadly looks commercial. The rent must be market rent at grant. If the term exceeds 5 years, the rent review machinery must be built into the lease and must require market rent at least every 5 years. Also, any later variation that depresses the rent below market can prevent the exclusion from applying.

The rule is therefore most likely to apply to straightforward rack-rent leases, particularly short leases or longer leases with genuine open-market rent reviews and no premium.

How to analyse it

A sensible way to approach the issue is to ask the following questions in order.

• Is there a transfer of an interest in a partnership that potentially falls within the Type A or Type B partnership transfer rules?
• Is the lease held as partnership property immediately after that transfer?
• Was any chargeable consideration given for the grant apart from rent?
• At the time of the transfer, were there any arrangements for non-rent chargeable consideration to be given later?
• Was the initial rent a market rent when the lease was granted?
• If the lease term is more than 5 years, does the lease require rent review at least once every 5 years?
• Do those review provisions require the reviewed rent to be market rent at the review date?
• Has the lease been changed since grant in a way that makes the payable rent less than market rent?

Evidence matters. In practice, a reader would usually want to check the lease itself, any side letters, variation documents, and any valuation material showing that the rent was at market level at grant and, where relevant, on review.

The phrase “arrangements are in place” is important. The source does not limit this to legally binding obligations. If there is a pre-existing plan or understanding for non-rent consideration to be provided, that may be enough to stop the condition being met.

Example

Illustration: A partnership holds a 4-year occupational lease of shop premises. The lease was granted at an open-market rent. No premium was paid, and there is no agreement or side arrangement for any premium or other non-rent payment. Later, one partner transfers part of their partnership interest.

On these facts, the lease is likely to fall within paragraph 15, assuming it is held as partnership property immediately after the transfer. The reason is that the term is 5 years or less, the rent was market rent at grant, and there is no non-rent chargeable consideration.

By contrast, if a 10-year lease was granted at market rent but had no rent review clause, it would not satisfy the third condition. Likewise, if the lease originally qualified but was later varied so that the rent became less than market rent, the fourth condition would not be met.

Why this can be difficult in practice

The main difficulty is usually not the wording of the rule but the facts.

First, “market rent” can be evaluative. The source gives an open-market definition, but applying that definition may require valuation judgment, especially where the premises are unusual, incentives were offered, or the lease contains terms that affect rental value.

Second, it is necessary to distinguish rent from other chargeable consideration. A lease may look rent-only on its face, but side arrangements, reverse premiums, inducements, or linked obligations may need careful analysis.

Third, for leases longer than 5 years, the rent review drafting matters. It is not enough that the parties expect to keep the rent commercial. The lease must provide for review at least once in every 5 years, and the reviewed rent must be required to be market rent at the review date.

Fourth, later changes to the lease can be critical. Even if the lease qualified when granted, a subsequent variation can take it outside the exception if the effect is to reduce the rent below market level.

Finally, this rule only tells you when a lease is not relevant partnership property for these partnership transfer rules. It does not mean the lease is ignored for all SDLT purposes.

Key takeaways

• A partnership lease can be excluded from relevant partnership property for Type A and Type B transfers, but only if all four paragraph 15 conditions are met.
• The core themes are no premium or other non-rent consideration, genuine market rent, and for longer leases, regular market-rent reviews.
• Later variations and side arrangements can prevent the exemption from applying, even where the lease initially looked straightforward.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Guidance on When Leases Are Not Relevant Partnership Property

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