Read the original guidance here:
HMRC SDLT: SDLTM34270 – Special provisions relating to partnerships: Application of exemptions and reliefs

Guidance on Stamp Duty Land Tax for Partnerships

This article explains how Stamp Duty Land Tax (SDLT) applies when an asset, like property, is transferred from a partnership, focusing on the special provisions relating to partnerships.

Key Concepts

When a partnership decides to transfer property, certain rules need to be followed to determine if SDLT is payable. The guidance will go through these steps in a straightforward manner.

Understanding the Scenario

Let’s consider the example of four partners in a partnership named A, B, C, and D.

– Partner A wishes to retire from the partnership.
– As part of the retirement agreement, Partner A will take a residential property to settle their share in the partnership.

The property is located in a disadvantaged area and has a market value of £160,000.

To understand any potential tax liability from this transfer, we refer to guidelines laid out in paragraphs 18 and 20, specifically mentioned in SDLTM33750.

Step-by-Step Process to Determine SDLT Liability

Step One: Identify the Relevant Owner(s)

– In this case, D emerges as the relevant owner because:
– After the transfer, D will hold a part of the property.
– Before the transfer, D was one of the partners in the partnership.

Step Two: Identify Corresponding Partner(s)

– Next, we need to find out which corresponding partner D has:
– Since D is the relevant owner and was a partner prior to the transfer, D is their own corresponding partner.
– Assuming A, B, and C are not connected to D, there are no other corresponding partners involved.

Step Three: Determine Chargeable Interest After the Transaction

– After the transfer, D will receive 100% of the property interest.
– As D is the only corresponding partner, they receive the entire amount.

Step Four: Calculate the Lower Proportion

– For the corresponding partner (D), we need to calculate the lower proportion. This is determined by two numbers:
1. The percentage of the chargeable interest linked to D, which is 100%.
2. The percentage of the partnership share connected to D, which is 25% (as there are four partners in total).

– Since we take the lower of these two amounts:
– 100% (of the chargeable interest) and 25% (partnership share).
– Therefore, the lower proportion here will be 25%.

Step Five: Sum of Lower Proportions

– In this scenario, there is just one lower proportion (25%).
– As a result, we sum the lower proportion, which remains 25%.

Chargeable Consideration Calculation

– To find the chargeable consideration, you can use the following formula:

Chargeable consideration = Market Value x (100 – Lower Proportion)%

– In this instance:

Market value = £160,000
Lower proportion = 25%
Calculation:
£160,000 x (100 – 25)%
= £160,000 x 75%
= £120,000

Since the chargeable consideration of £120,000 is below the threshold of £150,000, the disadvantaged area relief may apply.

Conclusion or Additional Guidance

This example demonstrates the method to determine SDLT liability when transferring property in a partnership context. For further information, always refer to the relevant guidelines or seek professional advice if needed.