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HMRC SDLT: Guide to Ordinary Partnership Transactions and Responsibilities in Partnerships

Ordinary Partnership Transactions

This article explains ordinary partnership transactions under UK stamp duty land tax (SDLT) regulations, particularly focusing on the Schedule 15 Part 2 of the SDLT legislation. It outlines the roles and responsibilities of partners in a partnership when it comes to SDLT. It also provides clarity on how to interpret different aspects of transactions involving partnerships.

Definition of Ordinary Partnership Transactions

An ordinary partnership transaction involves the buying, selling, or transferring of property that occurs within the context of a partnership. This can include land, buildings, or any other property that is considered in the partnership’s business activities. The important aspect is that the transaction takes place as part of the normal operations of the partnership.

• An ordinary partnership transaction is governed by specific rules under SDLT, which define how such transactions are handled for tax purposes.
• Partners act together when they make decisions regarding property and financial matters.

Understanding the Roles of Partners

Responsible Partners

The term ‘responsible partners’ refers to the partners who bear the legal responsibility for ensuring that the correct SDLT is paid for any transactions that the partnership engages in. This responsibility can depend on various factors, including the type of transaction and the internal agreements within the partnership.

• Each partner in a partnership can be considered a ‘responsible partner,’ which means they share accountability for SDLT compliance.
• When a partnership engages in transactions that require SDLT, sufficient measures should be taken to ensure the correct amount of tax is paid on time.

Joint and Several Liability

In partnership transactions, the principle of ‘joint and several liability’ means that all partners can be held responsible for the entire amount of tax due, even if one partner was specifically involved in the transaction. This principle means that if the partnership fails to pay the SDLT, HMRC can pursue any partner for the full amount owed.

• This effectively places the onus on every partner to ensure compliance with tax regulations.
• If one partner does not pay their fair share, the others may have to cover the shortfall to avoid penalties.

Representative Partners

In some cases, a partnership might designate a partner as a ‘representative partner.’ This partner may be assigned the duty to handle all SDLT matters on behalf of the partnership. The representative partner is responsible for filing returns and ensuring that payments are made correctly.

• While the representative partner manages SDLT affairs, the liability still rests jointly with all partners.
• This role can be formalised in the partnership agreement to clarify responsibilities.

Impact of Part 1 and Part 2 of the Legislation

The SDLT legislation is divided into different parts, each affecting how transactions are treated for tax purposes. Part 1 and Part 2 offer different rules that apply to ordinary partnership transactions.

• Part 1 outlines general rules applicable to land transactions, while Part 2 specifically caters to matters relating to partnerships.
• The rules set out in Part 2 apply when partners transact in property owned by the partnership.

Example 1: Property Transfer in a Partnership

Consider a situation where a partnership owns a commercial property valued at £1 million. In this case:

• If the partnership decides to transfer the property to one of the partners, SDLT would be payable on that transfer.
• The responsible partners must ensure that they calculate the correct tax based on the market value at the time of the transfer, which is £1 million in this instance.
• All partners share the liability for ensuring that the SDLT due is paid, regardless of who was involved in the transfer.

Example 2: New Partner Joining the Partnership

Now, let’s look at an example where a new partner joins an existing partnership:

• The partnership has two existing partners and decides to welcome a third partner.
• The new partner contributes £500,000 to buy a share of the partnership’s property portfolio, acquired at a total value of £2 million.
• In this case, the partnership must assess whether SDLT is due on the new contribution made by the incoming partner.
• The existing partners, along with the new one, share the responsibility for this SDLT obligation.

Transactions like these illustrate how partnerships should manage their SDLT responsibilities to ensure compliance with government regulations.