Read the original guidance here:
HMRC SDLT: SDLTM34470 – Application of exemptions and reliefs: Group Relief

Understanding SDLT and Group Relief for Partnerships

When a company transfers a chargeable interest to a partnership, there are specific rules to follow regarding Stamp Duty Land Tax (SDLT). For the sake of this guidance, we will look at the situation where B Ltd transfers an interest to a Limited Liability Partnership (LLP). It’s essential to follow the correct steps to understand the SDLT implications.

Key Steps in Applying SDLT

Here’s a systematic approach to determine the SDLT liability when a chargeable interest is transferred within a partnership:

Step One: Identify the Relevant Owners

– What is a relevant owner? This is any person or entity that owns a proportion of the chargeable interest at the time of the transfer.
– In our example, B Ltd is the relevant owner since it holds a percentage of the chargeable interest just before the transfer and becomes a partner just after the transfer.

Step Two: Identify the Corresponding Partners

– Who is a corresponding partner? This is any partner in the partnership who corresponds to the relevant owner.
– In this scenario, B Ltd is its own corresponding partner. After the transfer, B Ltd is also a partner in the LLP.
– C Ltd is connected to B Ltd because they belong to the same group. Therefore, under paragraph 27A of the SDLT guidance, C Ltd is also considered a corresponding partner since it is linked to the relevant owner immediately after the transaction.

Step Three: Determine the Proportions of Ownership

– Before the transaction, B Ltd owned 100% of the chargeable interest.
– Now that we have two corresponding partners (B Ltd and C Ltd), we need to apportion the chargeable interest between them in a way that provides the best outcome.
– For this example, we will allocate the chargeable interest equally: 50% to B Ltd and 50% to C Ltd.

Step Four: Establish the Lower Proportion for Each Partner

– The lower proportion for each partner is determined by comparing:
– The percentage of chargeable interest assigned to each partner (50% each from Step Three).
– The partnership share attributed to each partner (also 50% each in this example).
– Since both proportions are equal, the lower proportion for each partner is 50%.

Step Five: Calculate Total Lower Proportions

– Now we add the lower proportions together: 50 (B Ltd) + 50 (C Ltd) = 100.
– This total represents the sum of the lower proportions.

Understanding the Chargeable Consideration

Given that the total lower proportion (SLP) is 100, there is no chargeable consideration for this transaction. This means that no SDLT is due on this particular transfer.

What Happens if Paragraph 27A Doesn’t Apply?

– If paragraph 27A were not applicable in this case, C Ltd would not qualify as a corresponding partner.
– In such a scenario, B Ltd would only be able to declare a single corresponding partner with 50% of the market value of the chargeable interest. This would result in a chargeable consideration based on only 50% of that value.

Impact of Using Paragraph 27A

– Thanks to paragraph 27A, C Ltd’s status as a corresponding partner effectively reduces the overall chargeable consideration, allowing the partnership to benefit from a larger exemption.
– Without this paragraph, the chargeable liability would have been based on 50% of the market value. Instead, because C Ltd is treated as a corresponding partner, the liability is effectively lowered to nil.

How to Claim Group Relief

– The partnership needs to officially claim this group relief in the relevant land transaction return.
– This claim will address the reduction in SDLT charge, which is 50% in the example here.
– The claim is subject to standard group relief conditions outlined in Schedule 7, paragraph 2 of the SDLT guidance. However, some adjustments apply as per paragraph 27A(3).

Example Summary of SDLT Application

Let’s recapture the essential points from this example:

– Relevant Owner: B Ltd (has ownership prior to the transfer).
– Corresponding Partners:
– B Ltd (itself)
– C Ltd (connected to B Ltd and part of the same group).
– Proportions of Ownership:
– B Ltd: 50%
– C Ltd: 50%
– Lower Proportions:
– Total SLP: 100
– No SDLT charge is applied.

Knowing these steps and criteria helps clarify how group relief can benefit a partnership in SDLT calculations. It shows how specific arrangements within a group of companies can lead to significant financial benefits when transferring chargeable interests.