HMRC SDLT: SDLTM33780 – Partnership share for the purposes of Para20

Partnership Share for the Purposes of Para20

This section from the HMRC internal manual provides guidance on calculating partnership shares under Para20. It outlines the principles and concepts crucial for understanding the allocation of partnership shares.

• Defines partnership shares for tax purposes.
• Explains the calculation method for determining shares.
• Discusses relevant tax implications and compliance requirements.
• Provides examples to illustrate the application of these principles.

Understanding Partnership Shares for SDLT Purposes

When dealing with partnerships and stamp duty land tax (SDLT), it’s important to understand what a partnership share is and how it affects the tax calculations. According to the Financial Act 2003, a partnership share refers to the portion of the partnership’s profits that each partner is entitled to at any given moment. This share is defined under Paragraph 34(2).

However, specific rules affect how partnership shares are calculated, especially when determining lower proportions for the purposes of Paragraph 20. The important sections to consider are Paragraphs 21 and 22.

Key Principles of Partnership Shares

• Partnership Share Defined: This is the amount of profit or income a partner is entitled to based on their share in the partnership.
• Effective Dates Matter: The date when a property was transferred into the partnership can influence tax obligations significantly.
• Payment of SDLT: Whether SDLT was properly paid at the time of transfer has crucial implications for how shares are counted and subsequently taxed.

Paragraph 21: Properties Transferred Since October 2003 Without SDLT Paid

Paragraph 21 outlines a specific situation: if property was transferred into a partnership on or after 20 October 2003 and no SDLT was paid, or if the transfer was not properly stamped with the correct ad valorem duty, then the partner receiving the property is considered to have a partnership share of zero. This means that when the land is later transferred out of the partnership, the SDLT charge will apply to the full market value of that land, not just the partner’s portion.

Example: If a partner received a property from the partnership valued at £500,000 but SDLT was not paid during the initial transfer, the SDLT will be calculated against the entire £500,000 instead of a smaller portion attributable to that partner.

Paragraph 22: Properties Transferred In Before October 2003 or Properly Stamped Transfers

Paragraph 22 addresses cases where properties were transferred into the partnership either before 20 October 2003, or if the transfer occurred after that date, SDLT was correctly paid. In these situations, the partner’s partnership share is based on their actual share of the partnership.

Determining the Actual Share

• Before 20 October 2003: If the property was transferred before this date, the starting point for calculating a partner’s share is their actual share on 19 October 2003 or the date they joined the partnership if it was later.
• On or After 20 October 2003 With Correct SDLT Payment: For transfers that occurred on or after 20 October 2003, where SDLT was paid, the calculation begins with their actual share at the effective date of the property’s transfer or the date they became a partner, whichever is later.

Changes to the Actual Share Before Transfer

Once the actual share is determined, it can be adjusted depending on changes that occurred prior to the property being transferred out of the partnership. However, the share may only increase or decrease based on specific criteria and cannot go below zero. Notably, any increases in partnership shares will only be acknowledged if SDLT or stamp duty was properly paid during the transfers that resulted in those increases.

Example: If a partner had an actual share of 30% of partnership profits before the property was transferred and there were changes to the partnership share, these can adjust the share either upward or downward. But if there were transfers that increased shares and SDLT was not paid on those transfers, the adjustments would not be considered.

Important Considerations

• Timing of Transfers: The date when a property is entered into or removed from a partnership plays a significant role in tax and share calculations.
• Proper Stamping: Ensuring that SDLT is paid correctly during property transfers is essential to avoid complications and ensure the proper computation of partnership shares.
• Understanding Partner Contributions: Contributions made by partners may also influence their share and need to be accurately documented and reported.

In summary, when calculating partnership shares for SDLT purposes, it’s crucial to note the timing of property transfers, ensure proper tax is paid, and understand how these factors interact. The principles in Paragraphs 21 and 22 provide a framework that governs these calculations, helping to clarify the responsibilities of each partner and the tax implications involved.

For more detail on specific sections, you can refer to SDLTM33780 – Partnership share for the purposes of Para20.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM33780 – Partnership share for the purposes of Para20

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