HMRC SDLT: SDLTM33510 – Special provisions relating to partnerships: Transfers of a chargeable interest to a partnership

Special Provisions Relating to Partnerships

This section of the HMRC internal manual provides guidance on the transfer of a chargeable interest to a partnership. It outlines specific provisions and considerations for such transactions.

• Explains the legal framework governing partnerships and chargeable interests.
• Details the tax implications of transferring interests to partnerships.
• Provides examples of how these rules apply in practice.
• Offers guidance on compliance with HMRC regulations.

Title: SDLTM33510 – Special Provisions Relating to Partnerships: Transfers of a Chargeable Interest to a Partnership

When dealing with partnerships and property transfers, it’s important to understand how specific rules apply. This section focuses on the transfers of chargeable interests when a partner or related individual moves property into a partnership. Below, we break down these rules so they are easier to understand.

When do these rules apply?

The rules described here apply to several situations involving transfers of chargeable interests to a partnership:

• If a partner in the partnership transfers a chargeable interest (like property or land) to the partnership.
• If someone transfers a chargeable interest to the partnership in exchange for becoming a partner in that partnership.
• If a person who is related to a partner (like a family member) transfers a chargeable interest to the partnership.
• If a new partner joins the partnership as a result of or in connection with this transfer.

These rules pertain whether the transfer occurs as part of setting up a new partnership or as a contribution to an existing partnership.

Who is responsible for the transaction?

The general rules that apply to partnership transactions (outlined in Part 2) also affect transactions governed by these special provisions. Specifically, the following individuals will be deemed responsible for handling the transaction:

• The partners who were part of the partnership before the transfer and are still partners afterward.
• Any new partners who join as a result of, or in connection with, the transfer.

The responsible partners must ensure they comply with all related tax obligations under these rules.

What about elections under Para12A?

It is important to note that the rules in this section apply unless there is an election made under Para12A. For detailed information on how these elections work, refer to the relevant section at SDLTM34060.

What if there is a further transfer later on?

If a chargeable interest has been transferred to a partnership under these rules, be aware that there might be additional charges to Stamp Duty Land Tax (SDLT) if further transactions occur. These include:

• If there is a transfer of an interest in the partnership subsequently.
• If someone withdraws funds or assets from the partnership.

These additional charges are detailed in paragraphs 17 and 17A, which you may want to review for more context.

Understanding chargeable interests

To clarify, a chargeable interest typically refers to any type of interest in land that is subject to property tax. This could mean ownership rights, long-term leases, and similar agreements. When partners contribute these interests into a partnership, it is considered a transfer that may invoke specific tax rules.

Examples of transfers

Let’s illustrate these concepts with some basic examples:

• Example 1: Partner A owns a piece of commercial property worth £200,000. Partner A decides to transfer this property to their partnership, ‘ABC Partnership,’ to facilitate business operations. This transfer activates the special provisions discussed.
• Example 2: A family member of Partner B decides to transfer a property interest worth £150,000 to ‘ABC Partnership’ in exchange for becoming a partner. This situation also triggers the application of these rules.
• Example 3: After previously transferring the property, the partnership decides to sell a share of its interests for £50,000. This subsequent sale may incur additional SDLT charges as mentioned previously.

Key considerations

When planning a transfer of chargeable interests to a partnership, keep these important points in mind:

• Assess the value of the property or interests being transferred, as this will influence potential SDLT liabilities.
• Understand the obligations of current and new partners concerning the transfer, including any necessary declarations.
• Review the implications of future transactions that may involve buying or selling interests in the partnership.
• Consider election options under Para12A to potentially mitigate SDLT costs.

Next Steps

If you are thinking about engaging in a transfer of chargeable interests to a partnership or have further queries concerning partnership transactions, it’s advisable to consult relevant sections of the HMRC guidelines or seek tax professional advice to clarify your position. Understanding the rules and potential tax implications can save money and ensure compliance with tax regulations.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM33510 – Special provisions relating to partnerships: Transfers of a chargeable interest to a partnership

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