Read the original guidance here:
HMRC SDLT: SDLTM33110 – How is a partnership treated for SDLT purposes: Partnership defined for the purposes of SDLT-Para1

Understanding Partnerships for SDLT Purposes

Definition of a Partnership

For the purposes of Stamp Duty Land Tax (SDLT), a partnership is defined as one of the following:

– A partnership as outlined in the Partnership Act 1890
– A limited partnership registered under the Limited Partnerships Act 1907
– A limited liability partnership established under the Limited Liability Partnerships Act 2000 or the Limited Liability Partnerships Act (Northern Ireland) 2002
– A firm or entity that is similar in nature to the above, formed under the laws of any country or territory outside the United Kingdom

When the term ‘partnership’ is used in this guidance, it generally refers to any of these types of partnerships unless stated otherwise.

Criteria for a Partnership

A key point about partnerships is that they only exist if the entity involved is conducting a ‘business’. According to HMRC guidelines detailed in the Property Income Manual, specifically at PIM1030, having a partnership without engaging in business activities is not recognized as a valid partnership.

– If an entity is not actively engaged in running a business, the partnership regulations that apply in this section will not be applicable, regardless of whether there is a legal partnership deed in place.
– For example, if two people own a property together solely for investment purposes without undertaking any commercial activities, this arrangement might not count as a business.

What Constitutes a Business?

To determine whether a partnership is carrying on a business, several factors are considered, such as:

– Regularity and volume of transactions: Are the activities being conducted on a regular basis, and is there a significant number of transactions taking place?
– Intention to make a profit: Is there a clear aim to make a profit from the activities, suggesting a business interest?
– The nature of activities: Are the activities more than just holding an asset for passive income?

If individuals are simply sharing a property for joint use and not actively conducting business, that arrangement would not meet the criteria for a partnership for SDLT.

Examples of Business Activities

Let’s consider a few scenarios to clarify when a partnership might or might not qualify under the SDLT rules:

1. Example of a Valid Partnership:
– Two individuals form a limited liability partnership and start a rental agency that manages properties for landlords. They actively seek tenants, handle rental agreements, and deal with maintenance issues. This scenario represents a business running, so it qualifies as a partnership for SDLT purposes.

2. Example of a Non-Qualifying Arrangement:
– Two friends buy a holiday home and share usage for their vacations. They do not rent it out or conduct any financial transactions related to the property. Since they are not engaged in business activity, this situation does not qualify as a partnership under SDLT rules.

3. Example of Joint Investment:
– A group of investors purchases a commercial property to hold as an investment. They do not conduct any business activities such as leasing or selling, as they are only waiting for property value to increase. This would not qualify as a partnership because they are not actively engaged in business.

Importance of a Partnership Deed

A partnership deed is a legal document that outlines the terms and conditions of the partnership. While having a partnership deed can establish the relationship between partners, it does not automatically mean that the partnership meets the SDLT criteria.

– Business Engagement Required: The need to conduct business remains essential—without this, the legal agreement alone will not suffice for SDLT purposes.
– Clarifying Roles and Responsibilities: A partnership deed can help clearly define the roles of each partner, their contributions, and their share of profits. However, this does not replace the need for actual business activities.

Implications of Not Meeting SDLT Partnership Criteria

If an entity does not constitute a partnership according to the SDLT definitions, it may face various implications:

– Tax Liability: The parties involved may not be entitled to the benefits associated with partnerships, such as certain tax reliefs and exemptions related to SDLT.
– Property Transactions: When transferring property interests, the SDLT rules applicable to partnerships will not apply. This might lead to a higher tax burden if the individuals are seen as separate buyers rather than as a business entity.

Checking Your Partnership Status

To ensure that your partnership qualifies under the SDLT criteria, you may want to consider the following steps:

– Review the nature of your activities to determine if you are engaging in a legitimate business.
– Consult the Property Income Manual (PIM) for further guidance on specific activities that are considered business-like.
– If necessary, seek professional advice to clarify the status of your partnership and its implications for SDLT.

Partnerships and SDLT Legislation

Understanding how your partnership interacts with SDLT legislation is essential for compliance. It helps in planning your investment strategies and minimizing tax liabilities. Key points to note include:

– Legal Framework: Being aware of how the SDLT law defines partnerships can assist in making informed decisions.
– Regulations and Compliance: Keeping up with changes in tax regulations is essential for partnerships, as this can impact liability and compliance requirements.

Final Reminders

When evaluating whether your partnership qualifies under SDLT, remember the following:

– A genuine business activity is essential for the partnership to be recognized.
– A partnership deed does not automatically confer partnership status without business engagement.
– Always consider professional advice if you are uncertain about your partnership’s SDLT status.

For more detailed information regarding the treatment of partnerships for SDLT purposes, you can refer to the relevant section which can be found here: SDLTM33110 – How is a partnership treated for SDLT purposes?.