Read the original guidance here:
HMRC SDLT: SDLTM33230 – Ordinary partnership transactions: Joint and several liability – Para7

Understanding Joint and Several Liability for SDLT in Partnerships

What is Joint and Several Liability?

Joint and several liability means that when multiple individuals are responsible for a financial obligation, each person can be held accountable for the full amount. This principle is often applied in partnerships, particularly when it comes to tax liabilities like Stamp Duty Land Tax (SDLT).

When Do Partners Face Joint and Several Liability?

Partners in a partnership may be responsible for various payments related to SDLT, including:

– Tax payments or interest on any unpaid tax.
– Payments required under specific assessments (like recovering excessive repayments).
– Penalties related to SDLT or interest on those penalties.

When partners are liable in these areas, they share a joint and several liability. This means that if the partnership fails to make a payment, HMRC can pursue any one of the partners for the entire amount owed. This can put a significant financial burden on partners if one of them has not fulfilled their obligations.

When Doesn’t Joint and Several Liability Apply?

Not every partner in a partnership is automatically liable for SDLT payments. The key points to consider are:

– Partners who join after the effective date of the transaction that created the SDLT obligation are not liable for any tax or penalties that arose before they became partners.
– For partners who joined the partnership after the effective date, they will only be held liable if the issue that resulted in the tax liability, penalty, or interest took place after they became partners.

Examples to Clarify Joint and Several Liability

To better understand this concept, let’s consider some examples:

Example 1: A partnership of three individuals, Partner A, Partner B, and Partner C, makes a property transaction that incurs an SDLT obligation. If this transaction leads to unpaid taxes, all three partners are jointly and severally liable. HMRC can demand payment from any one of the partners for the total amount owed, not just their individual share.

Example 2: If Partner D joins the partnership six months after the property transaction that created the SDLT liability, they are not liable for the unpaid tax from that transaction, because their involvement started after the effective date. However, if the partnership then defaults on a tax payment for a transaction that occurred while Partner D was part of the partnership, Partner D could be held liable.

Partnership Assessments Under FA03

Under the Finance Act 2003 (FA03), there are specific assessments that can dictate the level of liabilities partners may face.

– One key aspect is the recovery of excessive repayments. If a partnership received more SDLT repayment than it was entitled to, it may be required to pay back that excess.
– In these instances, each partner can be held jointly and severally liable for rectifying the situation, regardless of whether they were part of the partnership at the time of the incorrect repayment.

Implications for New Partners

It’s essential for individuals considering joining an existing partnership to understand the potential risks associated with SDLT liabilities.

– New partners should assess any previous transactions and whether any liabilities exist that could impact them financially.
– They should also consider negotiating the terms of their partnership agreement to clarify the responsibilities for past transactions.

Managing Risk in Partnerships

To protect themselves from potential liabilities, partners can implement several strategies:

– Conduct Due Diligence: Before joining a partnership, an incoming partner should review the partnership’s financial history and any past SDLT liabilities.
– Insurance: Consider taking out insurance that covers tax liabilities related to SDLT.
– Clear Agreements: Establish clear partnership agreements that outline financial responsibilities and liabilities.

Conclusion

Understanding joint and several liability within a partnership dealing with SDLT can prevent financial surprises. It is important for both current and prospective partners to comprehend how this liability works, which partners are accountable, and what steps they can take to protect themselves from possible financial risks.