Read the original guidance here:
HMRC SDLT: Explaining SDLT Group Relief in Transfers to English Partnerships

Guidance on SDLT for Partnerships: Understanding Group Relief

This article explains how Stamp Duty Land Tax (SDLT) applies when a chargeable interest is transferred to an English Partnership (EP). The focus is on the application of paragraph 27A, which provides guidance on how relief works in partnership transfers.

Example Scenario

In our example, we have a partnership with four partners: A Ltd, B Ltd, C Ltd, and D Ltd. The shares in the partnership are distributed as follows:

• A Ltd – 45%
• B Ltd – 35%
• C Ltd – 15%
• D Ltd – 5%

A Ltd, in this scenario, transfers a warehouse worth £1,000,000 to the partnership.

Key Steps for Establishing SDLT Liability

When determining SDLT liability for this transfer, we need to follow a step-by-step process:

Step One: Identify the Relevant Owner(s)

The relevant owner is the entity that holds a chargeable interest before and after the transfer. In this case, A Ltd is the relevant owner because it owned the warehouse before the transfer and became a partner after the transfer.

Step Two: Identify Corresponding Partners

Now we need to identify the corresponding partner(s) for A Ltd:

• A Ltd’s corresponding partner is itself, as it becomes a partner in the EP after the transaction.
• B Ltd is connected to A Ltd and is part of the same group for SDLT purposes. Therefore, B Ltd is also treated as a corresponding partner.
• C Ltd, although owned by Mr X, is not in the same group as A Ltd and B Ltd. Hence, it does not qualify as a corresponding partner.

Step Three: Determine the Chargeable Interest

A Ltd has the full 100% of the chargeable interest before the transfer. This is now allocated between its own interest and that of B Ltd since they are both corresponding partners:

• We decide to split the interest equally in this scenario (50% each), as it gives the best benefit for tax purposes.

Step Four: Establish the Lower Proportion

Next, for each corresponding partner, we need to compare the proportion of the chargeable interest with their partnership share to find the lower percentage:

• For A Ltd:
  • Chargeable interest proportion: 50%
  • Partnership share: 45%
• For B Ltd:
  • Chargeable interest proportion: 50%
  • Partnership share: 35%

Since both partners have a partnership share that is lower than 50%, we will use their partnership shares instead:

• A Ltd: 45%
• B Ltd: 35%

Step Five: Calculate the Total Lower Proportion

Adding the lower proportions of both partners gives:

• 45% (A Ltd) + 35% (B Ltd) = 80%

This means that the chargeable consideration for SDLT purposes will be calculated as 20% of the market value of the warehouse, leading to a total of:

20% of £1,000,000 = £200,000.

Understanding Group Relief Under Paragraph 27A

If paragraph 27A had not applied in this situation, B Ltd would not have been considered as a corresponding partner. Consequently, the only chargeable share attributable to A Ltd would remain at 45%, leading to a chargeable consideration of:

55% of £1,000,000 = £550,000.

However, due to paragraph 27A, the charge for the transfer to the partnership is lowered to what would have been applicable had B Ltd been regarded as a corresponding partner. With the application of this provision, the lower charge is reflected as:

• Initial charge (55%) reduced to 20% of the market value due to the recognition of B Ltd’s status as a corresponding partner.

Thus, the partnership’s liability is reduced by 35%. This reduction is significant and demonstrates the benefit of understanding group relief.

Claiming Group Relief

To benefit from the relief provided by paragraph 27A, the partnership must submit a claim for group relief in their land transaction return. This claim is contingent upon meeting the standard group relief conditions, although there are some specific modifications for paragraph 27A, as outlined in paragraph 27A(3).

Important Notes on Group Relief Conditions

When applying for group relief, the partnership must ensure that:

• The companies involved comply with the standard conditions outlined in Schedule 7, paragraph 2 of the relevant tax regulations.
• The specific modifications mentioned in paragraph 27A(3) are adhered to.

This ensures that all regulatory requirements are met and that the partnership can effectively benefit from the reduced SDLT liability.

Final Considerations

Understanding how paragraph 27A applies in the context of SDLT and partnerships is essential for accurately assessing tax liabilities and maximising relief opportunities. By following the step-by-step approach outlined above, partnerships can navigate the complexities of SDLT and take advantage of relevant reliefs.For more information, please check SDLTM34365 – Application of exemptions and reliefs: Group Relief.