Read the original guidance here:
HMRC SDLT: Guide on Partnership Transfers and Chargeable Considerations with Examples

SDLTM33500 – Special provisions relating to partnerships: Transfers of a chargeable interest to a partnership

Overview – Paragraph 10

When a property ownership interest is transferred to or from a partnership, certain rules apply under Stamp Duty Land Tax (SDLT). This is particularly important to understand if you are entering or leaving a partnership. These provisions help simplify the calculation of SDLT due when properties change hands within partnerships.

Chargeable Consideration – Paragraph 10(2)

The term ‘chargeable consideration’ refers to the value of any interest that is transferred in a property deal. When moving a property into a partnership, the chargeable consideration includes all monetary and non-monetary components involved in the transaction.

– *Monetary components* include cash paid for the property.
– *Non-monetary components* can include properties or other assets given in exchange.

Understanding what counts as chargeable consideration is vital, as it determines the amount of SDLT owed.

Sum of the Lower Proportions – Paragraph 12 Example 1

When calculating SDLT for a transfer of property within a partnership, sometimes you will need to assess the lower proportions involved.

For example, let’s say Partner A owns 60% of the property, and Partner B owns 40%. The total chargeable consideration may be lower than if assessing the property as a whole. In this case, you would look at the share proportions to find the total that applies for SDLT purposes.

– If Partner A transfers their 60% to Partner B, the chargeable consideration is based on the value of Partner A’s share only, not the entire property.

Sum of the Lower Proportions – Paragraph 12 Example 2

Let’s consider another example: Suppose three partners own a property with ownership percentages of 30%, 50%, and 20%, respectively. Each partner decides to transfer their shares into a new partnership.

If the chargeable consideration is £300,000, you would calculate it based on the sum of the lower proportions. Here, the calculation would look as follows:

– Partner 1: 30% of £300,000 = £90,000
– Partner 2: 50% of £300,000 = £150,000
– Partner 3: 20% of £300,000 = £60,000

Therefore, the total for SDLT would be considered based on these individual proportions.

Sum of the Lower Proportions – Application of Detailed Provisions

The application of the lower proportions rule often requires consideration of the detailed provisions of SDLT.

When a property is jointly owned, care must be taken to read through the specific guidelines that impact partnerships. The law sets out clearly how to account for the transfer of interests, ensuring that all partnerships follow the same rules to achieve fairness in calculations.

– Therefore, when completing transactions that involve partnerships, keeping clear records of each partner’s interest percentage is critical to accurately figuring SDLT.

Example 1 – Application of Detailed Provisions

To illustrate the application of detailed provisions, let’s say a partnership owns a building valued at £1 million jointly. Each partner’s share is substantially the same.

Partner C decides to exit the partnership and sells their interest of 1/3. The SDLT will not be applied to the full £1 million, but rather only to the portion related to Partner C’s share.

– If Partner C’s share is worth £333,333, SDLT is calculated on this amount.

This method ensures that each partner is only taxed on what they’ve transferred and not on the entire value of the property.

Example 2 – Application of Detailed Provisions

Consider a situation with four partners, each holding equal shares of a commercial property. If one partner decides to leave and transfers their portion to the other three, the SDLT calculation follows similarly.

Say the property has a total value of £800,000. The withdrawing partner holds a one-quarter interest, worth £200,000. The SDLT chargeable on this transfer will only be on that £200,000 amount, not on the entire property value.

This approach is essential for maintaining fairness in property transactions within partnerships, as partners are only taxed on their specific share rather than the whole asset value.

Chargeable Consideration Includes Rent – Paragraph 11

Another important aspect of SDLT for partnerships involves understanding that chargeable consideration can also include rent payments. Whenever the transfer of a interest in a property involves rental agreements, these monetary amounts will be included in the SDLT calculation.

When properties are leased or rented between partners, the complete rent for the duration of the lease is considered part of the chargeable consideration.

Chargeable Consideration Includes Rent – Example 1

Imagine a commercial property leased to a partnership for £50,000 a year over a ten-year period. The total rent over the lease lasts will be £500,000.

– When calculating SDLT for a partnership interest transfer that includes this rental income, the £500,000 is added to any other monetary components involved in the transaction.

In this instance, both the cash paid for the property and the anticipated rent should be considered for chargeable consideration.

Chargeable Consideration Includes Rent – Example 2

Let’s use another example: Partner X owns 70% of a property valued at £1 million and pays £40,000 a year in rent for using a part of that property.

If Partner X decided to transfer their interest to the partnership, the chargeable consideration for SDLT purposes would include both:

– The value of Partner X’s share at £700,000.
– The total over the remaining lease period, which could be worth significant sums if the lease is long.

Thus, the complete amount, including the value of the transferred interest and future rent payments, would be evaluated when calculating SDLT.