HMRC SDLT: SDLTM33850 – Transfer of a chargeable interest from a partnership consisting wholly of bodies corporate – Example

Transfer of Chargeable Interest from Corporate Partnerships

This section of the HMRC internal manual provides guidance on the transfer of a chargeable interest from a partnership composed entirely of corporate bodies. It includes an example to illustrate the principles involved.

• Explains the concept of chargeable interest within corporate partnerships.
• Details the process of transferring such interests.
• Provides an example to clarify the application of these principles.
• Aims to ensure compliance with HMRC regulations.

SDLT Guidance on Property Transfer Between Corporate Partnerships

Introduction

This article explains the principles involved when properties are transferred between partnerships that consist entirely of corporate bodies. We will explore the transfer of a chargeable interest in a common scenario involving two companies. The concepts we discuss will be laid out clearly with the necessary steps to understand the Stamp Duty Land Tax (SDLT) regulations.

Scenario Overview

Let’s examine the actions taken by Company X and its subsidiaries.

– Company X owns two fully-owned subsidiaries:
– Company A (20% interest in a partnership)
– Company B (80% interest in a partnership)

The partnership in question transfers a property valued at £5 million to Company B for £1 million.

Understanding the Legal Framework

This transfer falls under the provisions of Paragraph 18, which relates to transfers from partnerships consisting entirely of corporate bodies. To determine the applicability of Paragraph 24, we must conduct a thorough analysis as follows.

Step-by-Step Breakdown of the Process

Step One: Identify Relevant Owners

– The first step is to determine the “relevant owner.” In this case:
– Company B qualifies as a relevant owner because it is a partner in the partnership and will hold a portion of the chargeable interest immediately after the transaction.

Step Two: Identify Corresponding Partners

– Next, we need to identify the partners that correspond to each relevant owner:
– Company B is its own corresponding partner because it was a partner before the transaction, and it is now the relevant owner.
– Company A cannot be a corresponding partner here as it is not an individual partner in this context.

Step Three: Determine Chargeable Interests After the Transaction

– After the transaction:
– Company B is entitled to 100% of the chargeable interest.
– Since there is only one corresponding partner involved, all of this interest is apportioned to Company B.

Step Four: Calculate the Lower Proportion

– The next step involves calculating the lower proportion:
– For Company B:
– Chargeable interest percentage attributable to Company B: 100%
– Partnership share based on Company B’s interest: 80%
– The lower proportion is therefore the smaller of the two values, which is 80%.

Step Five: Sum the Lower Proportions

– In this case, there is only one lower proportion calculated:
– Since Company B is the only corresponding partner, we do not need to add multiple proportions. The total lower proportion is 80.

Implications of the Lower Proportion

Because the lower proportion (80%) exceeds the threshold of 75%, a specific set of rules from Paragraph 24 applies. Consequently, the chargeable consideration is equal to the market value of the property transferred.

– Here, the market value of the property is £5 million.

Consideration of Group Relief

Since Companies A and B are subsidiaries of Company X, they are considered part of a grouped structure. Therefore, we need to apply the provisions of Schedule 7 from the Finance Act 2003, taking into account the modifications set by Paragraph 27 and Paragraph 25(2).

– This grouping could allow Company B to claim group relief. For further details on group relief, you can refer to SDLTM34360.

Summary of Key Points

– Company B is a relevant owner after the transaction, as it holds the chargeable interest.
– Company B serves as its own corresponding partner.
– The chargeable interest remains fully attributed to Company B, leading to calculations based on lower proportions.
– A lower proportion above 75% triggers specific SDLT provisions, deeming the chargeable consideration equal to the property’s market value.
– The group structure may offer tax relief options.

Through this carefully structured approach, businesses can navigate the complexities of SDLT more effectively while ensuring compliance with existing tax regulations. For more specific guidance, it is advisable to consult directly with SDLT resources or tax professionals.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM33850 – Transfer of a chargeable interest from a partnership consisting wholly of bodies corporate – Example

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