Read the original guidance here:
HMRC SDLT: SDLTM33840 – Transfer of a chargeable interest from a partnership consisting wholly of bodies corporate – Para 24

Understanding Para 24 of SDLTM33840

What is Para 24?

Para 24 specifically addresses transactions involving the transfer of certain interests from partnerships that are made up entirely of corporate bodies. Here are the main points to understand:

• Transaction Type: The transaction in question must relate to the transfer of a chargeable interest from a partnership.
• Partnership Composition: All partners involved must be corporate bodies, meaning they are companies or other such entities rather than individuals.
• Proportions Requirement: The sum of the lower proportions, as defined in Para 20, must total 75 or more.

How Does Para 24 Change Existing Rules?

The rules set out in Para 24 modify two other earlier paragraphs: Para 18 and Para 19. Here’s how:

• Chargeable Consideration (Para 18 Adjustment): When Para 24 is applicable, Para 18 is updated so that the consideration (the value assigned to the interest being transferred) is now based on the market value of the interest itself. This means that when defining the chargeable consideration for the transaction, the market value takes precedence over any other calculation.
• Further Changes (Para 19 Adjustment): Similarly, Para 19 is also modified to reflect the adjustments stipulated in Para 24.

Example of Para 24 in Action

Let’s look at a simple example to clarify how Para 24 works:

– Imagine a partnership called ABC Holdings, which consists solely of corporate partners. In this case, all partners are companies, such as ABC Ltd, DEF Ltd, and GHI Plc.
– If these companies decide to transfer a chargeable interest in a property to a third party, and the lower proportions, calculated under Para 20, come to a total of 80. Since this figure is 75 or greater, Para 24 is applicable.

As a result, the chargeable consideration for this transfer will be based on the property’s market value rather than a different calculation. Thus, if the property is valued at £1 million, that will be the figure used for tax purposes, simplifying compliance for the partnership.

Key Concepts Relating to Market Value

What is Market Value?

Market value refers to the price an asset would sell for on the open market. In legal and tax contexts, it is an important measure because it helps ensure fairness in transactions and proper assessment for duties such as stamp duty.

Importance of Chargeable Interest

A chargeable interest specifically refers to an interest in land that can incur a tax liability under stamp duty rules. It usually includes freeholds and leases that last for a significant duration.

Why Does this Matter?

Understanding how Para 24 functions is vital for businesses and professional advisors who manage corporate partnerships. Failing to comply with these rules can result in incorrect tax calculations, leading to penalties or unexpected financial consequences.

For instance, if a partnership miscalculates the consideration based on the lower proportions instead of the market value, they may end up underpaying stamp duty, which could attract scrutiny from HMRC.

Linking to Other Relevant Guidance

For a more detailed understanding of the implications when transferring chargeable interests from partnerships, you can refer to the guidance at SDLTM33840. Here is the link for further review: SDLTM33840 – Transfer of a chargeable interest from a partnership consisting wholly of bodies corporate.

Final Thoughts on Compliance

For individuals and companies engaging in property transactions through corporate partnerships, seeking expert advice on the application of Para 24 will enhance clarity and compliance. Making accurate assessments around market value and understanding the implications of chargeable interests will help ensure a smoother transaction process.

Keep in mind the importance of maintaining transparency and diligence during such transactions. It is wise to consult with tax professionals or legal advisors specializing in commercial property law to navigate these complexities effectively.

By being aware of how Para 24 operates within the framework of stamp duty transactions, partners in corporations can undertake transfers with greater confidence and awareness of their obligations.