HMRC SDLT: SDLTM33690 – Special provisions relating to partnerships: Incorporation of limited liability partnership FA03/S65
Special Provisions for Partnerships
This section of the HMRC internal manual discusses the incorporation of limited liability partnerships (LLPs) under FA03/S65. It provides guidance on specific provisions and considerations for LLPs.
- Explains the legal framework for LLP incorporation.
- Details tax implications and obligations for LLPs.
- Outlines the differences between LLPs and traditional partnerships.
- Provides procedural guidance for setting up an LLP.
Read the original guidance here:
HMRC SDLT: SDLTM33690 – Special provisions relating to partnerships: Incorporation of limited liability partnership FA03/S65
Special Rules for Transferring Property to a Limited Liability Partnership
This article explains the specific legal rules that relate to the transfer of property or interests when forming a limited liability partnership (LLP) in the UK, as stated in the Finance Act 2003, Section 65 (FA03/S65).
What is a Chargeable Interest?
A chargeable interest typically refers to a legal interest in property or land that can be taxed when transferred. This tax is known as Stamp Duty Land Tax (SDLT). Under certain situations outlined in FA03/S65, transferring a chargeable interest to an LLP may be exempt from this tax.
Key Conditions for Exemption
To qualify for the SDLT exemption when transferring a chargeable interest to a limited liability partnership, the transfer must meet specific conditions:
- Timing of the Transaction: The effective date of the transfer must occur no more than one year after the incorporation date of the LLP.
- Transferor’s Relationship with the LLP: At the time of the transfer, the person transferring the interest (referred to as the transferor) should be either:
- a partner in a partnership consisting exclusively of those who are members of the LLP or those who will become members shortly
- holding the interest as a nominee or bare trustee for one or more partners in that partnership.
- Proportional Interests: The interests transferred must maintain the same proportions for those individuals as they had before the transfer.
- This means:
- the proportions must stay unchanged after the transfer, or
- there should be no changes in those proportions as a result of a scheme intended to dodge taxes or duties.
Understanding ‘Relevant Time’
The term ‘relevant time’ is specific in this guidance:
- If the transferor nominated by the LLP acquired their interest after the LLP’s incorporation, “the relevant time” means right after they got the interest.
- If the transferor got their interest before the LLP was incorporated, then the relevant time refers to just before that incorporation.
Priority of FA03/S65 over Other Provisions
If both FA03/S65 and another provision (Paragraph 10) apply to the transfer, the rules under FA03/S65 take precedence. In such cases, the exemption from charge outlined by FA03/S65 will apply, and the provisions in Schedule 15 will not apply. HMRC prioritizes FA03/S65 in these situations.
Definition of Limited Liability Partnership
A limited liability partnership is a specific business structure recognized under two main pieces of legislation:
- The Limited Liability Partnerships Act 2000
- The Limited Liability Partnerships Act (Northern Ireland) 2002