Read the original guidance here:
HMRC SDLT: SDLTM33770 – Example 2 – application of detailed provisions

Understanding SDLT in Partnership Property Transfers

This guidance article explains how Stamp Duty Land Tax (SDLT) applies when a partnership transfers a property interest to one of its partners. We will explore key steps to determine the SDLT liability using a specific example to illustrate the process clearly.

The Scenario

Imagine a partnership that owns a freehold property—this is what we call a chargeable interest. The partnership wants to transfer this property to a partner, whom we will call Partner D. The partnership consists of three partners: Partner D, Partner E, and Partner F.

Here are a few important details:

• Partner D is married to Partner E.
• Partner D is not connected to Partner F in the context of SDLT rules.
• Partner E and Partner D each hold a 30% share of the partnership profits.
• Partner F holds the remaining 40% share.

Key Steps in the SDLT Calculation

The process to determine the lower proportions for SDLT evaluation involves several systematic steps as outlined below:

Step One: Identify Relevant Owners

The first step is to identify who the relevant owners are. A relevant owner is a partner who holds a share in the property immediately after the transfer.

• In our example, Partner D is a relevant owner because, after the transaction, he will hold a full interest in the property (100%) and was a partner prior to the transfer.

Step Two: Identify Corresponding Partners

Next, determine the corresponding partners for each relevant owner. A corresponding partner is defined as a partner who is connected to a relevant owner.

• For Partner D, he is his own corresponding partner since he was already a partner before the transaction and is now the relevant owner.
• Partner E is also a corresponding partner concerning Partner D due to their marriage and her status as a partner before the transfer.

Step Three: Determine Share of the Chargeable Interest

Now, we need to find out what proportion of the chargeable interest each relevant owner retains after the transfer.

• After the transfer, Partner D owns 100% of the chargeable interest.
• We can then divide this interest—let’s say we award 50% to Partner D and 50% to Partner E, recognising their partnership connection.

Step Four: Calculate Lower Proportions

The next step is to compute the lower proportions for the corresponding partners based on their partnership ownership. The lower proportion for each partner is the lower of the proportion of chargeable interest assigned to them or their partnership profit share.

• The lower proportion for Partner D is the minimum between 50% (his apportioned chargeable interest) and 30% (his share of the partnership profits). Hence, Partner D’s lower proportion is 30%.
• For Partner E, the lower proportion is also calculated. Again, it’s the lower of 50% (apportioned chargeable interest) and 30% (her share of the partnership profits). Thus, Partner E’s lower proportion is 30%.

Step Five: Sum the Lower Proportions

The final step is to add together the lower proportions of the corresponding partners. This total will help us figure out the percentage of the market value that is chargeable.

• By adding Partner D’s lower proportion (30%) to Partner E’s lower proportion (30%), we get a total of 60%.
• This tells us that there is a 40% portion of the market value that is chargeable for SDLT (as it’s calculated as 100% minus 60%).

Understanding the Implications

It’s important to note how this process impacts the overall tax liability. The total lower proportion of 60% that we calculated means that the remaining 40% will be assessed for Stamp Duty Land Tax when Partner D takes ownership.

Conclusion Note

The calculation of SDLT in partnership transactions can be complex but following these structured steps helps clarify the process and ensures compliance with HMRC regulations. This systematic approach reflects how important it is to know the ownership share of partners and their connections, which play a vital role in determining the tax implications of property transfer.