HMRC SDLT: SDLTM34310 – Special provisions relating to partnerships: Application of exemptions and reliefs

Special Provisions Relating to Partnerships

This section of the HMRC internal manual outlines the application of exemptions and reliefs for partnerships. It provides guidance on specific provisions that affect how partnerships can utilise tax exemptions and reliefs.

• Details the criteria for partnerships to qualify for certain tax exemptions.
• Explains the process of applying reliefs to partnership income.
• Highlights exceptions and special cases within partnership taxation.
• Offers examples to illustrate the application of these provisions.

SDLTM34310 – Special Provisions Relating to Partnerships: Application of Exemptions and Reliefs

Introduction to Partnership and SDLT Relief

In property investment partnerships, certain rules apply regarding Stamp Duty Land Tax (SDLT) when a new partner joins. This section explains how exemptions and reliefs can be claimed when a charity becomes a partner in such a partnership.

Understanding the Example

Consider a partnership made up of three partners, A, B, and C. Each partner owns one-third (33.33%) of the partnership. If a charity, which we will call D, wants to join this partnership, there are specific provisions in place.

Qualifying Purposes for SDLT Relief

Charity D may be eligible for relief from SDLT under the Finance Act 2003, Schedule 8 (FA03/Sch8). This relief applies if:

– The partnership holds the land for ‘qualifying purposes’ after D becomes a partner.
– ‘Qualifying purposes’ typically include charitable activities or any use related to charity work.

• For instance, if the partnership owns a property that the charity will use for its charitable events, it qualifies under this definition.

Time Frame for Maintaining Relief

It is important to understand the time frame involved in maintaining this SDLT relief.

– If, within three years of D joining the partnership, any of the property held by the partnership is no longer used for qualifying purposes, the relief will be revoked.
– In such cases, SDLT becomes due based on the proportion of the property’s market value.

• For example, if a certain property held by the partnership is sold and it was used for charitable purposes by the charity for less than three years, the SDLT relief will be taken back, and tax would be payable. This tax would be calculated on the market value proportionally allocated to the charitable property as it stood when the relief was first granted.

Working Mechanism of SDLT Relief

When D becomes a partner and qualifies for relief, the following occurs:

– The property is assessed to determine if it meets the qualifying conditions.
– If eligible, D does not have to pay SDLT on their share of the property at the time of admission.
– If, later on, the property is no longer used for a qualifying purpose, a recalculation occurs, and tax is levied on the proportionate value that was previously exempt.

Specific Paragraphs to Note

Relief calculations and criteria are often referenced in documents and schedules. For purposes of exemptions connected to this structure, pay attention to the following:

– Paragraph 14 of the FA03 outlines the general provisions related to property interests.
– It also states specific conditions under which SDLT is applicable.

Practical Steps for Charitable Partnerships

If you are a charity considering joining an existing property investment partnership, follow these steps:

1. Evaluate your Role: Confirm that your involvement in the partnership will align with the qualifying purposes required for SDLT exemption.

2. Gather Documentation: Make sure to collect all necessary documents that prove your charitable status and purpose. This documentation may be required for compliance when claiming relief.

3. Notify HMRC: When the change in partnership occurs, notify HMRC about the addition of the charity and seek relief under SDLT provisions.

4. Monitor Usage: Keep track of how the partnership property is being used following the admission of the charity. Maintain records that reflect the property’s usage consistent with qualifying purposes.

5. Understand the Implications: Make sure all parties in the partnership understand the implications of any changes in property use, especially regarding potential tax obligations if relief is lost.

Consequences of Non-Compliance

Failure to comply with the SDLT conditions can lead to consequences such as:

– Withdrawal of SDLT relief, meaning the partnership will have to pay back the tax that was initially exempted.

– Potential penalties or fines if HMRC finds inconsistencies or non-disclosure regarding changes in property use.

– A negative financial impact on the partnership, affecting distribution of profits and shares among partners.

• Suppose the charity leaves the partnership, and within three years, the property is sold. If any relief was claimed, and the property was not used exclusively for charitable purposes, the partnership would owe SDLT based on the market value at the time of the charity’s admission.

Conclusion: Key Takeaways for Charities and Partnerships

When a charity becomes a partner in a property investment partnership, it is vital to understand the implications and procedures associated with SDLT relief. This includes ensuring that the property is maintained for qualifying purposes and complying with all legal requirements to retain any exemptions that have been claimed.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM34310 – Special provisions relating to partnerships: Application of exemptions and reliefs

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