Read the original guidance here:
HMRC SDLT: SDLTM34010 – Para 14 – Overview

Understanding Property Investment Partnerships and SDLT

When a person transfers their interest in a property investment partnership that includes a chargeable interest, this transfer is treated as a land transaction for Stamp Duty Land Tax (SDLT) purposes. This means that SDLT must be paid based on the value of the property involved.

What is a Property Investment Partnership?

A property investment partnership is described in SDLTM34010 – Para 14 – Overview as a partnership whose primary focus is on investing in or dealing with chargeable interests. This can occur even if the partnership also engages in construction work on the relevant land.

Chargeable Consideration

• The chargeable consideration for the transaction is calculated as a portion of the market value of the partnership property.
• It’s important to note that the actual money paid does not influence this chargeable consideration.

The person acquiring the new interest in the partnership is known as the purchaser. This may involve obtaining a bigger share in the partnership or becoming a new partner due to the transfer.

Determining Partnership Share

• For someone who is becoming a new partner, their share is based on what it is immediately after the transfer.
• If an existing partner is involved but there is no new partner joining, their share is assessed by looking at what it was before and after the transfer.

Types of Transfers in Property Investment Partnerships

Transfers in property investment partnerships can fall into two categories: Type A and Type B. The details of these categories can be found in SDLTM34030.

The categorisation of the transfer impacts what is considered relevant partnership property. More types of property fall under relevant partnership property for Type A transfers compared to Type B transfers.

Chargeable Interests and Group Relief

For the purposes of FA03/Sch7/ Para 3(1) (withdrawal of group relief), the transfer of an interest classified under this section is treated as a chargeable interest.

Transfers Outside Property Investment Partnerships

Not all partnership interests are subject to SDLT. For instance, if someone buys into a farming partnership, this does not automatically lead to SDLT unless the partnership is deemed a property investment partnership or meets criteria specified in Para 10.

• If the farming partnership does not qualify, no SDLT is due, even if the partnership owns chargeable interests.

Identifying a Property Investment Partnership

A partnership that operates several rental properties collectively will likely be classified as a property investment partnership. Here are some characteristics:

• The partners actively manage tenant relationships.
• They collect rents and perform necessary repairs.

Additionally, if a partnership engages in construction activities related to properties, this does not automatically disqualify it from being considered a property investment partnership. For instance, a partnership primarily focused on property investment but also carrying out some development could still be classified as a property investment partnership under FA03/Sch15.

When is a Partnership Not a Property Investment Partnership?

On the other hand, a partnership mainly involved in developing properties, such as a house-building company making most of its profits from development, would not be regarded as a property investment partnership.

Business Activity Requirement

A partnership must operate as a business to qualify under SDLT guidelines. The concept of what constitutes a business is detailed in HMRC’s Property Income Manual and other resources. If the entity is not operating a business, the partnership rules discussed in this section won’t be applicable, regardless of any formal partnership agreement in place.

Types of Transfers Detailed

Knowing whether a transfer is a Type A or Type B is critical as it influences what qualifies as relevant partnership property. Details can be found in SDLTM34020.

Type A Transfers

• Most chargeable interests are included as relevant partnership property in Type A transfers.

Type B Transfers

• In Type B transfers, more categories of chargeable interests are excluded, including:
• If an election has been made under Para 12A concerning any chargeable interest transferred to the partnership, it will not be counted as relevant partnership property.
• Any chargeable interest transferred to the partnership that did not comply with events within Para 10 will also be excluded.

Connection Between Parties

The relationship between the parties involved in these transactions is not taken into consideration under the guidelines of Para 14, meaning that the valuation is based on market value.