Calculating Chargeable Consideration for Lease Transfer in Non-Residential Property Partnership

SDLT on a Lease Granted by a Partnership to a Partner

Where a partnership grants a non-residential lease to one of its partners, special SDLT rules may reduce the tax charge on both the premium and the rent. This is because the partner may already have an economic interest in the property through their share in the partnership, so SDLT is charged only on the part that increases that interest.

• SDLT on a non-residential lease can arise on two parts: any premium paid and the net present value of the rent.
• Under Schedule 15 to the Finance Act 2003, a partner’s existing economic share in the property can reduce the chargeable amount for SDLT.
• In HMRC’s example, the partner already had a 25% interest, so only 75% of the premium and 75% of the rent were chargeable.
• Using the example figures, the £240,000 premium was reduced to £180,000 and the £100,000 rental NPV was reduced to £75,000.
• On those figures, SDLT was due on the premium element but not on the rent element, giving total SDLT of £1,400.
• To work out the correct SDLT position, you must first apply the partnership rules, then test the reduced premium and rent against the normal non-residential lease thresholds and rules.

Scroll down for the full analysis.

SDLT on a partnership lease: how rent and premium are reduced under the partnership rules

This page explains an HMRC example about Stamp Duty Land Tax when a partnership grants a lease of non-residential property to one of its partners. The point of the example is that the normal SDLT charge on a lease can be reduced where the tenant already has an economic interest in the partnership property. The reduction applies separately to the premium and to the rent.

What this rule is about

Ordinarily, SDLT on a lease of non-residential property can arise on two different elements:

• any premium paid for the grant of the lease, and
• the net present value of the rent payable under the lease.

Where the transaction is between a partnership and a partner, special rules in Schedule 15 to Finance Act 2003 may apply. These rules recognise that a partner may already own part of the underlying property economically through their partnership share. In broad terms, SDLT is then charged only on the part of the transaction that represents an increase in that partner’s interest.

The example in the source material shows how that works where:

• a partnership grants a lease of non-residential property to one partner,
• that partner is not connected with the other partners for the relevant purposes, and
• the partner’s economic interest in the property increases from a partial share to full ownership of the leasehold interest.

What the official source says

HMRC’s example starts with these facts:

• A partnership grants a lease of non-residential property to Partner A.
• There are two other partners, and Partner A is not connected with them for the purposes of Part 3 of Schedule 15.
• Partner A is entitled to 25% of the income profits of the partnership.
• As a result of the grant, Partner A’s interest in the property goes from 25% to 100%.
• The sum of the lower proportions under paragraph 20 is 25.
• The net present value of the rent, calculated under Schedule 5 as applied by paragraph 19, is £100,000.
• The premium is £240,000, and HMRC accepts that this is a market value premium.

HMRC then applies the partnership reduction by charging SDLT only on 75% of each element, because the sum of the lower proportions is 25, so the chargeable fraction is 100 minus 25.

On the premium:

• £240,000 × 75% = £180,000 chargeable consideration.

On the rent:

• £100,000 × 75% = £75,000 chargeable net present value.

HMRC then compares each element with the relevant non-residential threshold stated in the example. On the figures used in the source:

• the premium element exceeds the threshold, so SDLT is charged on the amount above it, producing tax of £1,400, and
• the rental element is below the threshold, so no SDLT is due on that part.

The source also notes an important point: if the chargeable rental amount had exceeded the threshold, SDLT would have been due on the total of the premium and rental elements.

What this means in practice

The practical message is that, in a partnership transaction of this kind, you do not simply take the headline premium and headline rent figures and apply SDLT in the normal way. You first need to work out whether the special partnership rules reduce the chargeable amount.

In this example, Partner A already had a 25% economic stake in the property through the partnership. Because of that, only the remaining 75% of the premium and the remaining 75% of the rent are treated as chargeable for SDLT purposes.

This matters because:

• it may reduce the premium element enough to lower the SDLT bill, and
• it may reduce the rental element below the threshold so that no SDLT is payable on rent at all.

The example also shows that premium and rent must be considered separately at the calculation stage. A lease can involve SDLT on one element but not the other.

How to analyse it

If you are looking at a lease granted by a partnership to a partner, a sensible way to analyse the SDLT position is:

1. Identify whether the special partnership rules in Schedule 15 apply to the transaction.
2. Work out the partner’s existing economic share in the property and whether the transaction increases that share.
3. Calculate the sum of the lower proportions under paragraph 20. In the HMRC example, that figure is 25.
4. Apply paragraph 19 so that the premium and the net present value of the rent are each reduced by the non-chargeable proportion. Here, the chargeable proportion is 75%.
5. Test the reduced premium element and the reduced rental element against the relevant SDLT rules and thresholds for non-residential leases.
6. Compute the tax due on the resulting chargeable amounts.

Questions to ask include:

• Is the tenant already entitled to a share of partnership profits that reflects an existing interest in the property?
• Are any partners connected, and if so, does that alter the Schedule 15 analysis?
• Is the premium accepted as market value, or is market value substitution potentially relevant?
• Has the net present value of the rent been calculated correctly under the lease rules before applying the partnership reduction?

Example

Illustration based on the HMRC figures:

A partnership grants a non-residential lease to one of its partners. That partner already has a 25% economic interest in the property through the partnership. The lease carries:

• a premium of £240,000, and
• rent with a net present value of £100,000.

The partnership rules mean only 75% of each amount is chargeable:

• Premium: £240,000 × 75% = £180,000
• Rent: £100,000 × 75% = £75,000

Using the threshold stated in the source material, SDLT is payable on the premium element but not on the rent element, because the reduced rent figure remains below the threshold. The total SDLT shown in the example is £1,400.

Why this can be difficult in practice

The arithmetic in the example is straightforward, but the legal analysis behind it can be more difficult.

First, the partnership rules depend on concepts such as the partner’s share, the sum of the lower proportions, and whether partners are connected. Those points can be fact-sensitive, especially where partnership arrangements are complex or have changed over time.

Second, the source example says the premium is accepted as market value. That may matter because, in some situations, SDLT does not simply follow the amount actually paid. If market value is relevant, that issue must be resolved before doing the final calculation.

Third, the treatment of rent on leases has its own technical rules. The net present value must be computed under the lease provisions and only then adjusted under the partnership rule. If the NPV is wrong, the SDLT result will also be wrong.

Finally, HMRC’s statement that SDLT would be due on the total of the premium and rental elements if the chargeable amount exceeded the threshold reflects the lease charge rules in the example’s context. That is a reminder not to treat the premium and rent as wholly separate taxes; they are separate elements within one SDLT calculation.

Key takeaways

• When a partnership grants a lease to a partner, SDLT may be charged only on the part representing the partner’s increased interest.
• The reduction applies separately to the premium and to the net present value of the rent.
• To calculate SDLT correctly, you must first work out the partnership proportion under Schedule 15 before applying the normal lease charge rules.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Calculating Chargeable Consideration for Lease Transfer in Non-Residential Property Partnership

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