Understanding Partnership Share Rules for SDLT Calculations Under FA03/Sch15
How a partner’s partnership share is worked out for SDLT on land transferred out of a partnership
When land is transferred from a partnership to a partner, the SDLT calculation under paragraph 20 of Schedule 15 FA 2003 does not always use that partner’s current profit-sharing ratio. Instead, the rules may look back to when the property entered the partnership and whether SDLT or stamp duty was properly paid at that stage and on later changes in shares.
- The normal Schedule 15 rule is that a partner’s partnership share is their share of the partnership’s income profits at the relevant time, but paragraphs 21 and 22 can change this for paragraph 20.
- If the property entered the partnership on or after 20 October 2003 and the correct SDLT or ad valorem stamp duty was not paid, paragraph 21 can treat the transferee partner’s proportion as nil.
- Where paragraph 21 applies, the transfer out may be charged by reference to the full market value of the land, with no reduction for the partner’s economic interest.
- If paragraph 22 applies, the calculation starts from the partner’s actual share at a set earlier date, then adjusts for later increases or decreases, but never below zero.
- Later increases in a partner’s share only count if the transaction causing the increase was properly taxed for SDLT or stamp duty purposes.
- In practice, you often need to trace the property’s history, the partners’ shares, and the tax treatment of earlier transfers to work out the correct SDLT position.
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Read the original guidance here:
Understanding Partnership Share Rules for SDLT Calculations Under FA03/Sch15
How a partner’s “partnership share” is worked out for paragraph 20 of Schedule 15 FA 2003
This page explains a technical SDLT rule that applies when land is transferred out of a partnership. The key issue is how much of the property is treated as already belonging, in economic terms, to the partner receiving it. That matters because it affects how much of the transfer is charged to SDLT under paragraph 20 of Schedule 15 to the Finance Act 2003.
What this rule is about
Schedule 15 FA 2003 contains special SDLT rules for partnerships. In broad terms, when land moves into or out of a partnership, the tax result is not worked out in the same way as for an ordinary sale between unconnected parties.
For transfers out of a partnership, paragraph 20 uses a calculation that depends in part on the relevant partners’ proportions. The manual page explains what “partnership share” means for this purpose, and why the answer is not always just the partner’s current profit-sharing ratio.
The general rule in Schedule 15 is that a partner’s partnership share at a given time means the proportion in which that partner is entitled at that time to share in the income profits of the partnership, under paragraph 34(2). But for the paragraph 20 calculation, paragraphs 21 and 22 can override or modify that position.
What the official source says
The source says that, for Schedule 15 generally, “partnership share” means the partner’s share of the partnership’s income profits at the relevant time.
However, for the specific paragraph 20 calculation, there are extra rules in paragraphs 21 and 22.
Paragraph 21 applies where the property was transferred into the partnership on or after 20 October 2003 and either:
- SDLT was not paid, or
- the transfer was not duly stamped with ad valorem stamp duty.
In that case, the transferee partner’s proportion is treated as zero. The manual says the effect is that the SDLT charge on the transfer of land to that partner out of the partnership is based on the entire market value of the land transferred.
Paragraph 22 deals with the opposite category of case. It applies where the property was transferred into the partnership:
- before 20 October 2003, or
- on or after that date, but SDLT was paid or the transfer was duly stamped with ad valorem stamp duty.
Where paragraph 22 applies, the partner’s attributable partnership share starts from an earlier “actual share” and is then adjusted for later changes before the property leaves the partnership.
If the property entered the partnership before 20 October 2003, the starting point is the partner’s actual share on 19 October 2003, or on the date the person became a partner if later.
If the property entered the partnership on or after 20 October 2003 and the tax was correctly dealt with, the starting point is the partner’s actual share on the effective date of that transfer into the partnership, or on the date the person became a partner if later.
That actual share is then adjusted up or down for changes before the transfer out of the partnership, but not below zero. The source also says that increases in partnership share only count if SDLT or stamp duty was correctly paid on the transfer or transfers that caused the increase.
What this means in practice
This is an anti-avoidance and tracing rule. It stops a partner from getting credit, in the paragraph 20 calculation, for an interest in partnership property if that interest arose through an earlier transfer into the partnership on which the proper transfer tax was not paid.
In practical terms, there are two broad questions:
- When did this property enter the partnership?
- Was the correct transfer tax paid at that point, and on any later steps that increased the partner’s share?
If the answer points to paragraph 21, the transferee partner is treated as having a nil proportion for this purpose. That is a severe result. It means there is no reduction in the paragraph 20 charge by reference to that partner’s economic interest, and the manual says the charge is then on the full market value of the land transferred out.
If paragraph 22 applies instead, the partner may get credit for an attributable share, but only by tracing back to a recognised starting point and then adjusting for later changes that are accepted for tax purposes.
So the calculation is not simply based on the profit-sharing ratio on the day the property leaves the partnership. Earlier history matters, including whether SDLT or stamp duty was properly dealt with when the property came in or when a partner’s share later increased.
How to analyse it
A sensible way to approach the issue is as follows.
Identify the transfer out of the partnership.
You need to know which land is leaving the partnership and which partner is the transferee partner for paragraph 20 purposes.
Work out when that property entered the partnership.
The date the property was first transferred into the partnership is critical because it determines whether paragraph 21 or 22 may apply.
Check whether the transfer into the partnership was before or after 20 October 2003.
This date is the dividing line used by the legislation and the manual.
If the property entered on or after 20 October 2003, check the tax treatment of that transfer.
Was SDLT paid? Or, if stamp duty was the relevant regime, was the instrument duly stamped with ad valorem stamp duty? If not, paragraph 21 may reduce the transferee partner’s proportion to zero.
If paragraph 22 applies, establish the starting share.
For pre-20 October 2003 transfers in, start with the partner’s actual share on 19 October 2003, or when they became a partner if later. For later transfers in where tax was correctly paid, start with the partner’s actual share on the effective date of the transfer in, or when they became a partner if later.
Track later changes in the partner’s share before the transfer out.
Adjust the starting share up or down for subsequent changes. But increases only count if the transfer tax consequences of the event causing the increase were correctly dealt with.
Do not take the figure below zero.
The source expressly says the adjusted actual share can go down, but never below zero.
Example
This is only an illustration of the mechanism described in the source.
A property is transferred into a partnership after 20 October 2003. Later, that property is transferred out to one of the partners. If SDLT was not paid when the property first went into the partnership, paragraph 21 applies. For the paragraph 20 calculation, that partner’s proportion is treated as zero. On the manual’s explanation, the SDLT charge on the transfer out is then based on the whole market value of the land.
By contrast, if SDLT was correctly paid when the property entered the partnership, paragraph 22 may apply. In that case, the partner starts with their actual share at the effective date of the transfer into the partnership, or when they became a partner if later. That share is then adjusted for later increases or decreases before the transfer out, but later increases only count where the relevant transfer tax was correctly paid.
Why this can be difficult in practice
The main difficulty is that the relevant proportion for paragraph 20 is not always the same as the partner’s current economic entitlement. A partnership may have changed profit-sharing ratios several times, partners may have joined or left, and the property may have been held for many years.
Another difficulty is evidential. To apply paragraph 21 or 22 properly, you may need to reconstruct:
- when the property entered the partnership,
- who the partners were at that time,
- their actual shares at the relevant starting date, and
- whether SDLT or stamp duty was correctly paid on the transfer in and on any later transactions that increased a partner’s share.
The source also shows that not every increase in a partner’s share is automatically recognised. If the increase arose from a transfer or arrangement on which the proper transfer tax was not paid, that increase is ignored for this purpose. That can produce a result that differs sharply from the commercial position shown in the partnership accounts.
Finally, this page is only about the meaning of partnership share for the paragraph 20 calculation. It does not itself set out the whole paragraph 20 mechanism. In practice, this rule has to be fitted into the wider Schedule 15 framework.
Key takeaways
- For paragraph 20, a partner’s relevant share is not always their current profit share; paragraphs 21 and 22 may alter it.
- If property entered the partnership on or after 20 October 2003 and the proper transfer tax was not paid, the transferee partner’s proportion is treated as zero.
- Where paragraph 22 applies, the calculation starts from an earlier actual share and is adjusted for later changes, but later increases only count if the relevant SDLT or stamp duty was correctly paid.
This page was last updated on 24 March 2026
Useful article? You may find it helpful to read the original guidance here: Understanding Partnership Share Rules for SDLT Calculations Under FA03/Sch15
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