Read the original guidance here:
HMRC SDLT: SDLTM34365 – Application of exemptions and reliefs: Group Relief

Understanding SDLT and Group Relief: Case Study

This guidance explains the Stamp Duty Land Tax (SDLT) implications when transferring a chargeable interest to an English Partnership (EP). We’re focusing on the application of paragraph 27A.

Context of the Example

In this scenario, we have a transfer of a warehouse valued at £1,000,000 to an EP. The partnership consists of the following four partners:

• A Ltd – 45%
• B Ltd – 35%
• C Ltd – 15%
• D Ltd – 5%

Understanding the connections between these partners is essential for determining SDLT liability. Here are the relationships:

• A Ltd and B Ltd are connected and belong to the same group for SDLT purposes.
• C Ltd is owned by Mr X, who also owns the group that includes A Ltd and B Ltd.
• D Ltd operates independently and is unconnected to the others.

Steps for Assessing SDLT Liability

Step One: Identify Relevant Owners

A Ltd is considered a relevant owner because it holds part of the chargeable interest before the transaction and continues to be a partner after the transaction.

Step Two: Identify Corresponding Partners

For each relevant owner, we must identify who their corresponding partners are.

• A Ltd: As a relevant owner and partner after the transaction, A Ltd’s corresponding partner is itself.
• B Ltd: Because B Ltd is linked to A Ltd and both are in the same SDLT group, B Ltd will also be treated as a corresponding partner.
• C Ltd: Even though Mr X owns C Ltd and the group that includes A Ltd and B Ltd, C Ltd is not connected to A Ltd. Therefore, paragraph 27A does not apply to C Ltd.

For guidance on determining group relationships, refer to SDLTM23014.

Step Three: Establish Chargeable Interest Ownership

A Ltd owns 100% of the chargeable interest just before the transaction occurs. Since we have two corresponding partners (A Ltd and B Ltd), we need to allocate this ownership proportionately. Here we choose to divide it equally:

• A Ltd: 50%
• B Ltd: 50%

Step Four: Determine Lower Proportions

Now, we need to compare the proportions of the chargeable interest for each corresponding partner with their respective partnership shares.

• Chargeable interest proportions (from Step Three):
• A Ltd: 50%
• B Ltd: 50%
• Partnership shares:
• A Ltd: 45%
• B Ltd: 35%

The crucial point here is that since both partners’ partnership shares are less than their chargeable interest percentage, we must use their partnership share values:

• A Ltd: 45%
• B Ltd: 35%

Step Five: Total the Lower Proportions

Next, we add the lower proportions together:

• 45% (A Ltd) + 35% (B Ltd) = 80%

This total indicates the chargeable consideration for the transaction, which will be calculated as 20% of the market value of the charged interest:

• Chargeable consideration = 20% of £1,000,000
• Chargeable consideration = £200,000

Application of Paragraph 27A and Group Relief

Had paragraph 27A not applied, then B Ltd wouldn’t have been treated as a corresponding partner. In this case, the relevant partnership share would have been just 45%, which is A Ltd’s share. This would have meant that the chargeable consideration for this specific transaction would have amounted to:

• Chargeable consideration = 55% of the market value
• Chargeable consideration = 55% of £1,000,000
• Chargeable consideration = £550,000

However, since paragraph 27A applies, this allows for a reduced charge on the transfer to the EP. Because B Ltd is considered a corresponding partner, the charge is recalculated based on the 80% figure established earlier:

• The original consideration of £550,000 is reduced to £200,000.

This demonstrates that paragraph 27A effectively allows group relief, thereby reducing the SDLT liability in this scenario. The partnership must submit a claim for group relief on their land transaction return to reflect this reduction in charge (in this case, 35% reduction).

It is important to note that the claim must meet the standard conditions for group relief (as outlined in Schedule 7, paragraph 2), with some adjustments specified in paragraph 27A(3).