Read the original guidance here:
HMRC SDLT: Guide on SDLT for Partnerships: Chargeable Interest Transfers Explained

SDLTM33550 – Special Provisions Relating to Partnerships in Property Transfers

Overview

This guidance explains how to calculate Stamp Duty Land Tax (SDLT) when a part of a chargeable interest is transferred to a partnership. The focus is on the original owner’s remaining interest following the transfer and how it relates to their partnership status.

Key Steps in Calculating SDLT

The process involves several clear steps. Each step helps establish how much of the chargeable interest is involved when a relevant owner becomes a partner or is connected to a partner.

Step One: Identify Relevant Owners

A relevant owner is a person who meets both of the following criteria:

– They were entitled to a proportion of the chargeable interest immediately before the transaction.
– They are a partner or connected to a partner immediately after the transaction.

For example, if Alex owns a portion of a property and decides to transfer that interest to a partnership of which he becomes a member, he is classified as a relevant owner.

Step Two: Find Corresponding Partners

For every relevant owner identified, the next task is to find their corresponding partner or partners. A corresponding partner is defined as someone who meets these conditions:

– They are a partner in the partnership.
– They are the relevant owner or closely connected to the relevant owner.

If no relevant owner has a corresponding partner, the calculation of proportions results in a zero outcome for that transaction.

For instance, if Alex transfers his interest to a partnership but there is no partner who corresponds to him as a relevant owner, then there will be no lower proportions calculated.

Step Three: Determine Ownership Proportions

In this step, you must establish the proportion of the chargeable interest that each relevant owner held before the transaction occurred.

After identifying this proportion, it needs to be divided among one or more of the corresponding partners linked to each relevant owner.

There isn’t a fixed way to do this apportionment, meaning it can be done in a manner that yields the best result for the parties involved.

For example, if Alex held a 40% interest in the property and gave 20% to each of his two partners in the new partnership, this would be an acceptable method of apportioning his interest.

Step Four: Find Lower Proportions

Next, for each corresponding partner identified, you need to calculate the lower proportion of the chargeable interest related to them. This is determined by looking at two key figures:

– The proportion of the chargeable interest that is attributed to them.
– Their share in the partnership right after the transaction.

You will choose the smaller of these two numbers.

The proportion attributed to the partner will differ based on their relationship with the relevant owner:

– If the partner is linked to just one relevant owner, take the apportioned proportion from Step Three.
– If the partner is connected to multiple relevant owners, sum all the apportioned proportions for those owners.

For example, if after the transaction Alex is now a partner with a 30% share in the partnership, while the apportioned interest was 20%, the lower proportion would be 20%, as it is the lesser amount.

Step Five: Calculate the Total Lower Proportions

Finally, add together the lower proportions calculated for each corresponding partner connected to one or more relevant owners. This total gives you the overall sum of the lower proportions.

Importantly, special treatment is given to individuals who share a chargeable interest as beneficial joint tenants. For SDLT purposes, they are considered to hold the interest equally as tenants in common, as per guidelines in Para 12(2).

Additional Considerations

The guidance specifies that when considering connections for determining relevant owners and corresponding partners, companies are treated like individuals in specific contexts listed below. A company is regarded as connected to relevant owners if it:

– Is a trustee holding property.
– Is linked to the relevant owner just because of the provisions stated in section 1122(6) of the Corporation Tax Act 2010, as noted in Para 12(3).

Examples to Illustrate the Process

To clarify the process further, let’s look at some examples of how these steps play out.

Example 1: Single Relevant Owner and Partner

Suppose Ben owns 50% of a property and decides to transfer that interest to a newly formed partnership where he is a partner. After identifying him as a relevant owner, we find that he is also the corresponding partner.

1. In this case, Ben holds 50% of the chargeable interest before the transfer.
2. Since he is the only relevant owner and partner, the proportion is straightforward, and he is entitled to his 50%.
3. As a result, the lower proportion is 50%, the total sum of the lower proportions.

Example 2: Multiple Relevant Owners and Partners

Now consider Maria and Sam, each owning 30% of a property. They form a partnership together, and they’re both now partners in that partnership.

1. Both are relevant owners, each with 30% chargeable interest.
2. Maria and Sam are corresponding partners to each other.
3. The total proportion is simply the sum of both their percentages, which adds up to 30% for each.
4. The lower proportion calculation results in both having a total of 30%, leading to the final total of 60% for the partnership.

Final Notes on SDLT Calculations

It is important for partners and relevant owners to be aware of how their interests can be assessed and calculated for SDLT purposes in property transfers. Understanding the steps and calculations involved could affect how they structure their partnerships and agreements.

The process may seem complicated, but once the key terms and steps are understood, it becomes clearer how to handle SDLT in partnership contexts. Although legal advice is often recommended for specific situations, following these guidelines allows for a clearer understanding of the obligations and calculations related to SDLT transfers in partnership dealings.