HMRC SDLT: SDLTM34280 – Special provisions relating to partnerships: Application of exemptions and reliefs
Special Provisions Relating to Partnerships
This section of the HMRC internal manual provides guidance on the application of exemptions and reliefs specific to partnerships. It outlines the principles and concepts necessary for understanding these special provisions.
- Explains the criteria for exemptions and reliefs applicable to partnerships.
- Details the conditions under which these exemptions can be applied.
- Provides examples to illustrate the application of these rules.
- Offers guidance on compliance with HMRC regulations.
Read the original guidance here:
HMRC SDLT: SDLTM34280 – Special provisions relating to partnerships: Application of exemptions and reliefs
Understanding SDLT for Partnerships: Special Provisions and Exemptions
When a partnership involves property investment, certain rules apply under Stamp Duty Land Tax (SDLT). This article explains these rules, especially for partnerships, focusing on exemptions and reliefs. We will cover how these rules apply through an example involving partners and the property they invest in.
Key Concepts in SDLT for Partnerships
1. Partnership Structure
– A partnership is a business structure where two or more individuals (partners) work together. Each partner shares profits, losses, and the management of the venture.
2. Relevant Partnership Property
– This refers to the properties owned by the partnership that are subject to SDLT when a partner joins or acquires an interest in the partnership.
3. Market Value
– This is the estimated price for which a property would sell in the open market, considering various factors including location and property type.
4. Chargeable Consideration
– The total amount of money or value given for acquiring an interest in the partnership property, which forms the basis for calculating SDLT.
Example of Partners and Property Valuation
Let’s consider a practical example involving three partners: A, B, and C.
– A and B are equal partners, owning their property investment partnership equally.
– C joins the partnership by paying £500,000 for a one-third interest in the partnership.
The properties owned by the partnership are all situated in a disadvantaged area. The total value of the land is divided as follows:
– Residential Property: £300,000
– Non-Residential Property: £1,000,000
It has been agreed among partners that this division of value is fair and just.
Calculating SDLT for the New Partner
According to Paragraph 14(7) of the regulations, SDLT applies to a proportion of the market value of the partnership’s relevant property. Here is the step-by-step breakdown of how SDLT is calculated for C:
1. Determine the Proportion of Interest Acquired
– C is acquiring a 33.33% interest in the partnership. This means they will pay SDLT on 33.33% of the total partnership property value.
2. Calculate Total Market Value of Partnership Property
– The combined market value of both residential and non-residential properties is:
– Residential: £300,000
– Non-Residential: £1,000,000
– Total Value: £1,300,000
3. Calculate SDLT Liability
– C’s SDLT liability is:
– 33.33% of £1,300,000 = £433,333.33
Exemptions for Residential Property in Disadvantaged Areas
In certain circumstances, exemptions may apply to the SDLT calculation, particularly for residential properties in disadvantaged areas. According to Paragraph 26(4):
– If the part of the property value that is residential is under £150,000, it can be excluded from the total consideration subject to SDLT.
Now, let’s calculate the residential proportion attributable to C’s new interest:
1. Determine Proportion of the Residential Property
– C’s share of the residential property is:
– 33.33% of £300,000 = £100,000
2. Apply the Exemption
– Since C’s portion of the residential property (£100,000) is below the £150,000 threshold, it can be excluded from the chargeable consideration.
Final Calculation of SDLT Due by Partner C
Now we can calculate how much SDLT is actually due after applying the exemption:
1. Calculate Chargeable Consideration After Exemption
– Total SDLT liable amount: £433,333.33
– Less the excluded residential property amount: £100,000
– Remaining amount subject to SDLT:
– £433,333.33 – £100,000 = £333,333.33
2. Conclusion on SDLT Calculation
– Therefore, C will only pay SDLT on £333,333.33 instead of the total amount when entering the partnership.
Important Points to Remember
– The applicable SDLT percentage rates may vary depending on the total consideration involved.
– The rules surrounding exemptions are subject to change, and it is important for partners to check the current legislation.
– Consider consulting a tax professional for tailored advice regarding specific partnerships and property valuations.
Further Reading on SDLT and Partnerships
For more detailed guidance on SDLT provisions and related topics, consider visiting the relevant HMRC resources or consulting literature on SDLT related to partnerships.