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HMRC SDLT: SDLTM33830 – Transfer of a chargeable interest from a partnership to a partnership – example 2

Transfer of Chargeable Interest Between Partnerships: Example 2

In this example, we look at a situation where one partnership transfers some land it owns to another partnership. This guidance clarifies the process and calculations involved with Stamp Duty Land Tax (SDLT).

Partnership Structure

– Partnership 1 consists of four equal partners: A, B, C, and D. These partners are unconnected.
– Partnership 2 has three partners: A, B, and E holding shares of 20%, 60%, and 20% respectively. These partners are also unconnected.

Transfer Overview

This transaction is a transfer from Partnership 1 to Partnership 2, and it meets the criteria for both a transfer to a partner and from a partner. Therefore, two regulations apply:

– Paragraph 10 for transfers from the partnership to partners.
– Paragraph 18 for transfers to the partnership from the partners.

According to Paragraph 23, when both Paragraph 10 and Paragraph 18 apply, we need to calculate both to find the one that results in the higher chargeable amount.

Applying Paragraph 10

Step One: Identify Relevant Owners

– A: A is considered a relevant owner because he holds a proportion of the chargeable interest right before the transaction occurs and continues to be a partner after the transaction.
– B: Similarly, B is also a relevant owner for the same reasons as A.

Step Two: Identify Corresponding Partners

– A’s corresponding partner is himself since he is both a relevant owner and a partner after the transaction.
– B’s corresponding partner is also himself because he fulfills the same criteria.

Step Three: Determine Chargeable Interest Before the Transaction

– A is entitled to 25% of the chargeable interest right before the transaction.
– B is also entitled to 25% of the chargeable interest right before the transaction.

Step Four: Calculate Lower Proportions

The lower proportion for each corresponding partner is determined by comparing their share of the chargeable interest with their partnership share.

– For A:
– Proportion of chargeable interest: 25%
– Partnership share: 20%
– Lower proportion: 20%.

– For B:
– Proportion of chargeable interest: 25%
– Partnership share: 60%
– Lower proportion: 25%.

Step Five: Sum of Lower Proportions

We now add the lower proportions found in Step Four.

– Lower proportion for A: 20
– Lower proportion for B: 25

Total lower proportions: 20 + 25 = 45.

Chargeable Consideration Calculation

The chargeable consideration is determined by the market value (MV) multiplied by the percentage (100 – SLP)%. In this case, that results in 55% of the market value.

Applying Paragraph 18

Step One: Identify Relevant Owners Again

We reassess the relevant owners after the transfer.

– A: A is a relevant owner because he still retains a proportion of the chargeable interest immediately after the transfer.
– B: B is also a relevant owner for the same reasons as A.

Step Two: Identify Corresponding Partners Again

– A’s corresponding partner is again himself since he remains a relevant owner and partner.
– B’s corresponding partner is also himself for the same reasons.

Step Three: Determine Chargeable Interest After the Transaction

– A is now entitled to 20% of the chargeable interest immediately after the transaction.
– B is entitled to 60% of the chargeable interest immediately after the transaction.

Step Four: Calculate Lower Proportions

Again, we compare the relevant partner’s share with their partnership share.

– For A:
– Proportion of chargeable interest: 20%
– Partnership share: 25%
– Lower proportion: 20%.

– For B:
– Proportion of chargeable interest: 60%
– Partnership share: 25%
– Lower proportion: 25%.

Step Five: Sum of Lower Proportions Again

Adding the lower proportions gives us:

– Lower proportion for A: 20
– Lower proportion for B: 25

Total lower proportions: 20 + 25 = 45.

Chargeable Consideration Calculation for Paragraph 18

Similarly, the chargeable consideration calculated is the market value (MV) multiplied by (100 – SLP)%, which results in 55% of the market value once more.

Final Chargeable Consideration

In this example, the calculations for both Paragraph 10 and Paragraph 18 yield the same results. Therefore, the amount liable for SDLT remains at 55% of the market value of the properties transferred to Partnership 2.