HMRC SDLT: SDLTM33570 – 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 details the special provisions concerning the transfer of a chargeable interest to a partnership. It outlines the principles and concepts involved in such transactions.

• Explains the legal framework governing transfers to partnerships.
• Details the tax implications for involved parties.
• Provides guidance on calculating chargeable interests.
• Offers examples to illustrate complex scenarios.
• Includes references to relevant legislation and case law.

Introduction to SDLT and Partnerships

Stamp Duty Land Tax (SDLT) is a tax you pay when you buy property or land in the UK. When a chargeable interest, like a piece of property, is transferred to a partnership, specific rules apply. This article explains how SDLT works for partnerships, particularly when one partner transfers property to the partnership.

Understanding Chargeable Interest

A chargeable interest refers to an ownership interest in a property subject to SDLT. For example, if you own a freehold property, that property is considered a chargeable interest. When this type of property is transferred to a partnership, it is essential to follow the correct procedure to assess any SDLT due.

Example Scenario

Imagine a situation where Partner D owns a chargeable interest, specifically a freehold property. Partner D wants to transfer this property to a partnership they are part of, which includes Partner E and Partner F. In this scenario:

• Partner D is married to Partner E, so they are connected.
• Partner F is not connected to Partner D.
• Partner D has a 30% share of the partnership’s income profits, while Partner E shares the same 30%, and Partner F has the remaining 40%.

Steps to Determine SDLT

To calculate SDLT for this transfer, you can follow a series of steps. Here’s a breakdown of those steps:

Step One: Identify Relevant Owners

In this case, Partner D is the sole relevant owner. Before the transfer occurs, Partner D is entitled to a part of the chargeable interest. After the transfer, Partner D becomes a partner in the partnership, which makes them a relevant owner.

Step Two: Corresponding Partners

After the transfer, Partner D is their own corresponding partner since they are now a partner. Additionally, Partner E is also a corresponding partner to Partner D because they are connected by marriage. They both have stakes in the property, making them relevant for this process.

Step Three: Determine Share of Chargeable Interest

Initially, Partner D owns 100% of the chargeable interest before the transaction. To optimise tax implications, the ownership proportion can be assigned to the corresponding partners (Partner D and Partner E). For this example, let’s say we divide the share equally, giving 50% ownership to each partner.

Step Four: Identify Lower Proportion

The next stage is to calculate the lower proportion for each corresponding partner. This is determined by comparing two factors:

• The proportion of the chargeable interest assigned to the partner (50% in our example)
• The partner’s share in the partnership after the transfer (30% for both Partner D and Partner E)

For both partners, the lower proportion will be 30% since it is less than their assigned interest. This step shows that lower proportions are important in calculating the final tax liability.

Step Five: Calculate Total Lower Proportions

Next, we add together the lower proportions from each corresponding partner. In this instance, you have:

• Lower proportion for Partner D: 30%
• Lower proportion for Partner E: 30%

Adding these together gives us a total of 60%.

Final Proportion for SDLT Purpose

According to paragraph 10(2) of the guidance, to determine the proportion of market value chargeable for SDLT purposes, we use the formula (100 – SLP)%. Here, SLP refers to the Sum of the Lower Proportions. In our example, we calculate 100 – 60%, which results in 40%. This percentage indicates the value on which SDLT will be charged.

Alternative Allocation of Chargeable Interest

It is important to note that the proportions allocated in Step Three could have been unevenly assigned. For instance, if Partner D were allocated 100% of the chargeable interest and Partner E nothing (0%), the lower proportions for SDLT calculation would change. Thus:

• Lower proportion for Partner D would remain at 30% (based on their partnership share).
• Lower proportion for Partner E would be 0% (based on their share assigned).

This would result in a total of 30% when added together. Thus, SDLT would be calculated using 100 – 30%, giving a chargeable percentage of 70% of the market value. This highlights that it is typically more advantageous to assign the partners a proportion of the chargeable interest that is at least equal to their share in the partnership.

Key Takeaways

When dealing with SDLT in partnerships, it is critical to assess how chargeable interests are transferred, and how different allocations can affect the SDLT you owe. Following these steps ensures you can determine the proper amounts and potentially minimise tax liabilities. The process involves identifying relevant and corresponding partners, determining ownership proportions, calculating lower proportions, and summing them to determine the amount on which SDLT will be charged.

For further guidance on partnerships and SDLT, please refer to SDLTM33570 – Special provisions relating to partnerships: Transfers of a chargeable interest to a partnership.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM33570 – Special provisions relating to partnerships: Transfers of a chargeable interest to a partnership

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