Read the original guidance here:
HMRC SDLT: SDLTM34610 – Special provisions relating to partnerships: Stamp Duty implications of Schedule15 – Example

Understanding Stamp Duty Land Tax (SDLT) for Partnerships

Overview

Stamp Duty Land Tax (SDLT) applies when property changes hands, including when a partner joins a partnership. This guide explains how to assess SDLT liabilities when shares and property are involved in a partnership.

Key Concepts

– Partnership Property: The assets owned by the partnership, which can include real estate and shares in companies.
– Market Value (MV): The price that property would sell for on the open market.
– Outstanding Liabilities (SL): Any debts secured against the property, such as mortgages.
– Net Market Value: The MV of property minus any SL.
– Consideration: The amount one partner pays for their share of the partnership.

Examples of SDLT Calculation in Partnerships

Example 1: Joining Partners and SDLT on Property

A partnership consisting of partners A and B owns a commercial property and shares in various companies:
– Commercial Property MV: £1.5 million
– Outstanding Mortgage Debt: £500,000
– Shares MV: £580,000

When partner C joins and pays £400,000 for a 25% share in the partnership, we need to determine the SDLT liability.

1. Calculate the Net Market Value:
– MV – SL = £1,500,000 – £500,000 = £1,000,000

2. Determine the Excluded Amount:
– Since C is acquiring a 25% share, the excluded amount is:
– 25% of £1,000,000 = £250,000

3. Calculate Consideration for SDLT:
– Consideration Passing – Excluded Amount = £400,000 – £250,000 = £150,000

4. Determine SDLT Rates:
– The SDLT rates are specified in the legislation. If included in the transfer is a certificate of value showing £250,000, the applicable SDLT rate is 1%.
– Therefore, the SDLT on £150,000 will be £1,500.

5. Assessing Duty on Shares:
According to regulations, if any share transfers are also subjects of SDLT, we must consider those as well. The key point is that we need to assess the market value of the shares, which is £580,000:
– C’s share of the stocks is 25% of £580,000 = £145,000
– SDLT on this amount at the rate of 0.5% is £725.

6. Final SDLT Liability:
– The total SDLT payable is the lower of the two calculations:
– £1,500 (from property) vs. £725 (from shares)
– Thus, the SDLT liability is limited to £725.

Example 2: Different Values and No SDLT Liability

In another partnership of A and B:
– Commercial Property MV: £1.5 million
– Outstanding Mortgage Debt: £500,000
– Shares MV: £180,000

Partner C joins by paying £300,000 for a 25% share. Again, we need to determine the SDLT liability.

1. Net Market Value Calculation:
– MV – SL = £1,500,000 – £500,000 = £1,000,000

2. Exclusion Calculation:
– The excluded amount remains the same:
– 25% of £1,000,000 = £250,000

3. Consideration Calculation for SDLT:
– £300,000 (Consideration) – £250,000 (Excluded Amount) = £50,000

4. SDLT Rate and Yardstick:
– The calculated consideration now falls below the zero per cent threshold. If a certificate included in the instrument shows £125,000, the SDLT liability is zero.

5. Conclusion:
– Since the calculation is below the required threshold, there is no SDLT liability applicable.

Key Considerations

– When assessing SDLT, always factor in both real estate values and shares held by the partnership.
– The SDLT implications can vary significantly based on the amount of consideration paid and the property’s outstanding liabilities.
– Always consult the specific legislative paragraphs and schedules (like Para14, Para32, Para31-33, and so on) for accurate and detailed assessment procedures.

Final Notes on Calculating SDLT for Partnerships

– Keep Accurate Records: Ensure all details of the property and shares are well documented to calculate SDLT liability correctly.
– Consider Professional Advice: Given the complexities of SDLT and partnership structures, it can be beneficial to consult a tax advisor or legal professional familiar with SDLT regulations and how they apply to partnerships.