Read the original guidance here:
HMRC SDLT: SDLTM33550 – Special provisions relating to partnerships: Transfers of a chargeable interest to a partnership

SDLTM33550 – Special Provisions Relating to Partnerships: Transfers of a Chargeable Interest to a Partnership

Purpose of the Calculation

The calculation described in Paragraph 12 ensures that Stamp Duty Land Tax (SDLT) is applied when a part of a chargeable interest is transferred to a partnership. This is done by determining how much of the chargeable interest is still held by the original owner, now a partner in the partnership or related to a partner.

Understanding the Process

This process involves several steps to assess the transfer correctly. The sum of the lower proportions in relation to a transaction is established by following these steps:

Step One: Identify the Relevant Owner(s)

A ‘relevant owner’ is defined as someone who meets two conditions:

• Before the transaction, they were entitled to a portion of the chargeable interest.
• After the transaction, they are either a partner or connected to a partner.

Step Two: Identify the Corresponding Partner(s)

Next, for each relevant owner, you will need to find the corresponding partner. A ‘corresponding partner’ is defined as someone who:

• Is a partner immediately after the transaction, and
• Is either the relevant owner or is closely connected to the relevant owner.

If there are no relevant owners with corresponding partners, then the total of the lower proportions will be zero.

Step Three: Determine the Proportion of the Chargeable Interest

For every relevant owner identified, you must figure out what proportion of the chargeable interest they held before the transaction took place.

You then need to divide this proportion among the relevant owner’s corresponding partners. There is no fixed rule for this apportioning; it can be adjusted in a way that favours the owner most.

Step Four: Calculate the Lower Proportion

Next, calculate the lower proportion for each corresponding partner in relation to one or more relevant owners. The lower proportion is defined as the lesser of the two values:

• The proportion of the chargeable interest that is assigned to the partner, or
• The partner’s share of the partnership, following the transaction.

To clarify how to establish the proportion of the chargeable interest:

• If a partner corresponds to only one relevant owner, their proportion is simply the portion of the chargeable interest assigned to them in Step Three.
• If the partner corresponds to more than one relevant owner, then add together the respective portions assigned in Step Three.

Step Five: Summarise the Lower Proportions

Now, you need to sum the lower proportions for each corresponding partner related to one or multiple relevant owners. The outcome of this process will give you the total lower proportions.

Special Considerations

For these calculations, if a person is a beneficial joint tenant of a chargeable interest, they will be treated as a beneficial tenant in common, having equal shares in accordance with Paragraph 12(2).

Additionally, in regard to Step Two’s condition (b), a company may be viewed as an individual connected to the relevant owner under specific circumstances:

• If it holds property as a trustee, and
• If it is connected to the relevant owner as per section 1122(6) of the Corporation Tax Act 2010.

This is highlighted in Paragraph 12(3).