HMRC SDLT: SDLTM33810 – Transfer of a chargeable interest from a partnership to a partnership – Para23

Transfer of a Chargeable Interest from a Partnership to a Partnership

This section of the HMRC internal manual provides guidance on the transfer of a chargeable interest between partnerships. It outlines the legal and tax implications involved in such transactions.

• Explains the concept of chargeable interest in the context of partnerships.
• Details the legal framework governing these transfers.
• Discusses tax liabilities and exemptions applicable to partnerships.
• Provides examples to illustrate the application of these principles.

Transfers of a Chargeable Interest from One Partnership to Another

When a partnership transfers a chargeable interest to another partnership, specific rules apply to ensure the correct Stamp Duty Land Tax (SDLT) is calculated. These rules are detailed in Paragraph 23 of the guidance.

What is a Chargeable Interest?

A chargeable interest refers to any interest in land or property that is subject to Stamp Duty Land Tax. This could include ownership rights or leasehold interests, which generally require the payment of tax when transferred or acquired.

When Does Paragraph 23 Apply?

Paragraph 23 is relevant in two specific situations:

– Transaction from Partnership to Partnership: It applies when there is a transfer of a chargeable interest from one partnership to another.
– Application of Other Rules: The transfer must relate to both:

– Para 10 Application: This relates to transfers of a chargeable interest to a partnership.
– Para 18 Application: This deals with transfers of a chargeable interest from a partnership.

If both conditions are satisfied, Paragraph 23 overrides the need to apply the rules of Para 10 and Para 18 directly.

How is Chargeable Consideration Calculated?

Under Paragraph 23, the determination of chargeable consideration is simplified:

– When both Para 10 and Para 18 are applicable, the chargeable consideration will be the higher amount calculated from either Paragraph 10 or Paragraph 18.

This means that regardless of which transaction generates a lower amount, the partnership will need to pay SDLT based on the larger sum.

Involving Rent as Chargeable Consideration

Sometimes, the payment for the transfer may include rent as part of the chargeable consideration. In this scenario, the rules for calculating this consideration change slightly under Paragraph 23:

– Disapplication of Other Paragraphs: The specific rules under Para 11 (dealing with rent in transfers to a partnership) and Para 19 (related to rents in transfers from a partnership) will not apply.
– Higher Chargeable Consideration: Instead, the chargeable consideration will be determined as the higher amount between the calculations provided by Para 11 and Para 19.

This ensures that the partnership pays the appropriate amount of SDLT even when the consideration includes rent.

Example Scenario

Let’s illustrate these principles with a hypothetical situation:

Imagine Partnership A owns a piece of land and decides to transfer this chargeable interest to Partnership B. This transfer involves two components:

1. The sale of the chargeable interest, valued at £500,000, and
2. An annual rental payment of £20,000 which is part of the overall consideration.

In this case, the valuation works as follows:

– If the calculation under Para 10 for the transfer to Partnership B would result in a SDLT charge of £15,000.
– The calculation under Para 18 for the transfer from Partnership A would yield a charge of £10,000.
– For rent under Para 11, it might indicate an additional charge of £5,000, while the application of Para 19 may show a charge of £8,000.

In this situation:

– The relevant chargeable consideration is treated as the higher amount from Para 10 (£15,000) or Para 18 (£10,000), which is £15,000.
– For the rent consideration, the higher amount between Para 11 (£5,000) and Para 19 (£8,000) is £8,000.

Overall, the partnerships will pay SDLT based on the higher values from the respective calculations: £15,000 for the transfer and £8,000 for the rent.

Key Takeaways

– Application of Paragraph 23: This allows the shifts in consideration between the two transactions (from one partnership to another) to be reconciled in a way that ensures the correct SDLT is paid.

– Disapplication of Other Rules: The rules from Para 10, Para 11, Para 18, and Para 19 are adapted under Paragraph 23 to streamline calculations, focusing on the higher chargeable considerations.

– Rent Considerations: If rent is part of the consideration in the transaction, the calculations are adjusted to reflect the higher charge for the purpose of SDLT.

This simplified approach allows partnerships to better understand their SDLT liabilities in transactions involving chargeable interests and effectively manage their tax responsibilities.

For further details or to explore more about SDLT transactions, you can access information at [SDLTM33810](https://stampdutyadvicebureau.co.uk/hmrc/SDLTM33810).

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM33810 – Transfer of a chargeable interest from a partnership to a partnership – Para23

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