Read the original guidance here:
HMRC SDLT: SDLTM33590 – Special provisions relating to partnerships: Transfers of a chargeable interest to a partnership

Special Provisions for Partnerships: Transfers of a Chargeable Interest

This article explains the special rules that apply when a chargeable interest in property is transferred to a partnership. We will look at the example of an individual renting non-residential property to their partnership, detailing how the Stamp Duty Land Tax (SDLT) is calculated in this case.

Understanding Chargeable Interests

A chargeable interest refers to property rights that can trigger SDLT when they are bought, sold, or transferred. When property is involved, it’s important to identify who holds the interest and how it may be affected by transfers involving partnerships.

Example Scenario

Let’s consider an example to illustrate this situation:

• Individual A grants a lease of non-residential property to a partnership.
• Individual A is one of the partners, and she has two other partners in the partnership.
• For SDLT purposes, A is not connected to the other partners.
• A is entitled to 40% of the partnership’s income profits.

As a result of this transaction, the proportion of the leasehold interest owned by Individual A decreases from 100% to 40%. We need to calculate the ‘sum of the lower proportions’ (SLP), explained in more detail in the SDLT manual, which in this case equals 40 as calculated with reference to SDLTM33550.

Net Present Value of Rents

The next step involves calculating the net present value (NPV) of the rents based on the criteria listed in the relevant legislation. In our example:

• The NPV of the rents is calculated to be £100,000, using principles outlined in the relevant legislation.

Calculating Consideration Chargeable on the Transfer

When transferring the leasehold interest to the partnership, two types of consideration are taken into account, which affect the SDLT charge.

Market Value of the Premium

The premium charged by Individual A when granting the lease was £250,000. This amount reflects the market value of the lease.

To compute the chargeable amount from the premium, the following formula is used:

• Market value of the premium x (100 – SLP) %
• Calculation: 250,000 x (100 – 40)% = £150,000

Net Present Value of Rents

Next, we must consider the chargeable proportion of the NPV of rents. This is done using the formula:

• NPV of rents x (100 – SLP) %
• Calculation: 100,000 x (100 – 40)% = £60,000

Thresholds for Non-Residential Property

In the UK, there are specific thresholds that determine whether SDLT is payable when dealing with non-residential property:

• The current threshold for non-residential property values is £150,000.
• For the premium amount of £150,000, as calculated earlier, this is equal to the threshold, meaning that no SDLT is due on this part of the transfer.
• Similarly, the chargeable portion of the NPV of rents at £60,000 is also below the threshold of £150,000, indicating that no SDLT is owed on this element as well.

Final SDLT Calculation

In summary:

• The SDLT due on the premium element is zero.
• The SDLT due on the rental element is also zero.

Therefore, the total SDLT due in this scenario is zero.

Key Takeaways

The example provided shows how SDLT is calculated when an individual transfers a lease of non-residential property to a partnership, with specific attention given to:

• The importance of identifying the share of interest owned by the transferring partner.
• Calculating the premium based on market value and using the percentage reduction due to the share of lower proportions.
• Recognising the thresholds that influence whether any SDLT is payable.

By understanding these important principles, individuals involved in partnerships can more accurately determine their SDLT obligations when transferring a chargeable interest.