Read the original guidance here:
HMRC SDLT: SDLTM34220 – Special provisions relating to partnerships: Application of exemptions and reliefs

Understanding Special Provisions for Property Investment Partnerships

This article discusses the taxation implications when a property investment partnership interest is passed from a father to his daughter due to the father’s death. We will break down the relevant laws and their application to make the process clearer.

What is a Property Investment Partnership?

A property investment partnership is an arrangement where two or more individuals work together to invest in property. Each partner typically shares in the profits and losses of the investment based on the agreement they have in place.

Type B Transfers

When discussing the transfer of partnership interest upon someone’s death, it falls under what is known as a Type B transfer. Under paragraph 14 of the relevant legislation, this type of transfer occurs when an interest in a partnership is passed to another individual as part of the deceased’s estate.

Calculation of Chargeable Consideration

The daughter, in this case, would be responsible for a consideration charge. This charge is calculated based on the value of the interest she acquired in the partnership, multiplied by the market value of what is termed the “relevant partnership property.” The specifics of this calculation can be found in paragraphs 6 and 7 of paragraph 14. Simply put:

• The consideration is the daughter’s share of the partnership.
• This share is multiplied by the market value of the property owned by the partnership.

Exemptions Under FA03/Sch3/Para 3A(1)

The Finance Act 2003 (FA03), specifically Schedule 3, Paragraph 3A(1), provides an exemption from this tax under certain circumstances. It states that if an individual acquires property as part of fulfilling an entitlement in a will or following the intestacy (when someone dies without leaving a will) of a deceased person, that acquisition can be exempt from charge. However, specific conditions must be met for this exemption to apply:

• The acquisition must be derived from the will of the deceased.
• Or, it must come as part of the intestate estate.

Applying the Exemption to the Transfer

In the situation described where a father passes his interest in a partnership to his daughter after his death, the following applies:

• The transfer of the partnership interest is generally chargeable according to Paragraph 18.
• However, because this transfer falls under the conditions outlined in FA03/Sch3/Para 3A, it can be exempted from charge.

This means the daughter may not have to pay the tax that would typically be charged on the transfer of her father’s interest in the partnership. The relevant legal references for this are FA03/Sch3/Para 3A(1) and Sch15/Para 25(2).

Key Takeaways

When dealing with the passing of partnership interests, it’s essential to understand:

• What constitutes a Type B transfer and how it is taxed.
• The method for calculating the chargeable consideration based on market value and share size.
• The specific exemptions that are available under the Finance Act 2003.

By getting familiar with these terms and principles, it will be easier to navigate the tax implications of transferring property partnership interests in the event of a partner’s death.