Read the original guidance here:
HMRC SDLT: SDLTM34600 – Special provisions relating to partnerships: Stamp Duty implications of Schedule 15

Stamp Duty Implications of Transfers of Partnership Interests

When dealing with partnership interests, it’s essential to be aware of both Stamp Duty (SD) and Stamp Duty Land Tax (SDLT) implications. This guide will explain how these taxes may apply when a partnership interest is transferred.

Understanding the Context

FA03/Sch15 specifically addresses SDLT, but it is important to note that transferring a partnership interest can also incur liabilities under the Stamp Duty framework. The relevant paragraphs for these implications are 31 to 33.

Exclusion from the Abolition of Stamp Duty

Paragraph 31 makes it clear that transfers of partnership interests are not exempt from Stamp Duty, even after some Stamp Duty rules were abolished by FA03/S125 and Sch20. Instead, under certain conditions outlined in Section 12 of the Stamp Act 1891, a formal assessment of any documents that transfer partnership interests is required, even if neither SDLT nor SD is applicable.

When is Stamp Duty Chargeable?

A possible SD charge arises when an instrument transfers partnership interests and the partnership includes stock or marketable securities. This applies similarly to SDLT but has specific limits:

• The SD chargeable is either:
  • The lower amount of the chargeable consideration (after deducting excluded amounts), or
  • The market value of the relevant portion of chargeable stocks and marketable securities that are part of the partnership assets.

Determining the Excluded Amount

The excluded amount is calculated based on the net market value of the relevant partnership property immediately after the transfer. According to Paragraph 32(4), this proportion is determined by:

• If the new partner was not already a partner prior to the transfer, the share they receive immediately after the transfer will be used.
• If the new partner was already a partner, the excluded amount will be the difference between their share before the transfer and after the transfer (Paragraph 32(5)).

Calculating Net Market Value

To compute the net market value (NMV) for a partnership interest, use this formula:

NMV = MV − SL

Where:

• MV is the market value of the chargeable interest at a specified date.
• SL is the amount still owed on any loans secured solely on the chargeable interest (Paragraph 32(6)).

If the loan amount (SL) exceeds the market value (MV), the net market value is recorded as zero (Paragraph 32(7)).

Relevant Partnership Property Definition

The relevant partnership property, in the context of a transfer of a partnership interest, includes all chargeable interests held as partnership property right after the transfer. However, it does not include any additional interests acquired by the partnership in connection with the transfer (Paragraph 32(2)).

No Relevant Property, No Charge

If the partnership property does not include stock or marketable securities, there will be no charge to Stamp Duty (Paragraph 33(1)).

Matter of Valuing Stocks and Marketable Securities

When the partnership property does involve stock or marketable securities, any Stamp Duty payable is limited to an amount that would have been applicable if:

• The document was classified as one transferring that stock and marketable securities.
• The valuation of the transfer equated to the appropriate proportion of the net market value of the stock and securities immediately after the transfer (Paragraph 33(3)).

Calculating Appropriate Proportions

The appropriate proportion for valuation is determined as follows:

• If the new partner was not a partner before the transfer, the share they hold right after the transfer will be used.
• If they were already a partner, it will be the difference between their share before and after the transfer (Paragraph 33(5)).

Net Market Value for Stock or Securities

To compute the net market value of stocks or securities at a designated date, use:

NMV = MV − SL

Where:

• MV is the market value of the stock or securities.
• SL is the amount owed on any loan secured solely on those stocks or securities (Paragraph 33(6)).

If SL is greater than MV, then the net market value for the stock or securities is considered as zero (Paragraph 33(7)).

Definition of Relevant Partnership Property

The relevant partnership property concerning a transfer of an interest in a partnership is defined as the partnership property held immediately after the transfer, excluding any property transferred to the partnership concurrent with the transfer (Paragraph 33(3A)).