Tax Rules for Partnership Transfers Involving Tax Avoidance Arrangements

LTT anti-avoidance rule for transfers of partnership interests

This rule can apply where land is first transferred into a partnership and, under pre-existing tax avoidance arrangements, a partnership interest is later transferred instead of the land itself. If the conditions are met, the later partnership interest transfer is treated as a land transaction for Land Transaction Tax purposes, and the original land transfer and later transfer are treated as linked transactions.

• The rule only applies if there was an earlier transfer of a chargeable interest into a partnership, the special partnership rules applied, and there is then a later transfer of a partnership interest.
• The later transfer must be made by the original transferor, a person becoming a partner in return for transferring land, or a connected person, under tax avoidance arrangements already in place at the time.
• Without this anti-avoidance rule, the later transfer of the partnership interest would normally not be a chargeable transaction.
• If the rule applies, the partners are treated as the buyers and the chargeable consideration is based on the market value, at the date of the later transfer, of the land interest originally transferred into the partnership.
• The taxable proportion depends on how much of the transferor’s partnership share is given up: either their full share if they leave the partnership, or the reduction in their share if they stay.
• In practice, key issues are whether the arrangements amount to tax avoidance, who is caught by the rule, how the land interest is valued, and the effect of the linked transaction rules.

Scroll down for the full analysis.

LTT and partnerships: transfer of a partnership interest under tax avoidance arrangements

This page explains a specific anti-avoidance rule in the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act. It applies where land is transferred into a partnership and, as part of tax avoidance arrangements, there is then a transfer of a partnership interest instead of a direct taxable land transaction. If the rule applies, the partnership interest transfer is treated as if it were a land transaction and can be taxed accordingly.

What this rule is about

Normally, a transfer of an interest in a partnership is not itself a land transaction. That matters because partnerships can hold land, and changes in partnership interests can alter who has the economic benefit of that land without there being a direct transfer of the land itself.

This rule is aimed at arrangements where land is first transferred into a partnership and there is then a later transfer of a partnership interest, with the overall arrangements designed to avoid tax. In that situation, the legislation can look through the partnership interest transfer and treat it as a deemed land transaction.

The rule sits within the special partnership provisions and is directed at cases where the ordinary treatment would otherwise leave the later transfer outside charge.

What the official source says

The source says the rule applies where all of the following conditions are met:

• There is a transfer of a chargeable interest to a partnership, including a property investment partnership. This is the original land transfer.
• The special partnership rules apply to that land transfer.
• There is then a later transfer of an interest in the partnership.
• That partnership interest transfer is made by the person who made the land transfer, or by a person who is to become a partner in return for transferring a chargeable interest for a partnership interest, or by a person connected with such a person.
• The partnership interest transfer is made under arrangements which are, or form part of, tax avoidance arrangements that already existed at the time of the transfer.
• Apart from this special rule, the partnership interest transfer would not be a chargeable transaction.

If those conditions are satisfied, the transfer of the partnership interest is deemed to be a land transaction. That deemed land transaction is chargeable, and the partners are treated as the buyers.

The deemed chargeable consideration is based on the market value, at the date of the partnership transfer, of the interest transferred by the original land transfer. The taxable proportion is:

• if the transferor is not a partner immediately after the partnership transfer, that person’s partnership share immediately before the transfer, or
• if the transferor is still a partner immediately after the partnership transfer, the difference between that person’s share before and after the transfer.

The source also says that, where the rule applies, the original land transfer and the later partnership transfer are treated as linked transactions. The linked transactions rules then apply to them together.

For these purposes, the responsible partners are the persons who were partners immediately before the transfer and remain partners afterwards, together with anyone who becomes a partner as a result of, or in connection with, the transfer.

The expression “tax avoidance arrangements” takes its meaning from section 31 LTTA.

What this means in practice

The practical point is that a partnership structure cannot necessarily be used to move the value of land from one person to another without an LTT charge arising.

If land is put into a partnership and the economic ownership is then shifted by transferring a partnership interest under tax avoidance arrangements, the legislation can impose a charge as though there had been a land transaction. The law does this by deeming the partnership interest transfer to be a land transaction, even though a partnership interest is not usually treated that way.

The amount brought into charge is not based on the whole value of the partnership or the whole value of all partnership property. It is based on a proportion of the market value, at the date of the later transfer, of the interest that was transferred by the original land transfer into the partnership.

The size of that proportion depends on how much of the transferor’s partnership share is given up:

• if the transferor exits completely, the relevant proportion is that person’s full partnership share immediately before the transfer;
• if the transferor remains a partner but with a smaller share, the relevant proportion is the reduction in that person’s share.

The linked transaction treatment is also important. It means the original transfer of land into the partnership and the later transfer of the partnership interest are not looked at in isolation. They are treated as linked and taxed under the linked transaction rules, which may affect the overall LTT calculation.

How to analyse it

A sensible way to analyse this provision is to work through the following questions in order:

• Was there an earlier transfer of a chargeable interest into a partnership?
• Did that earlier transfer fall within the special partnership rules?
• Was there then a later transfer of an interest in the partnership?
• Who made that later transfer? Was it the original transferor, a person becoming a partner in return for transferring land, or someone connected with such a person?
• Would the later transfer, on ordinary principles, fall outside charge?
• Was the later transfer made under arrangements that were, or formed part of, tax avoidance arrangements already in existence at the time?

If the answer to all of those questions is yes, the next step is to identify the deemed consideration:

• identify the market value, at the date of the partnership transfer, of the interest originally transferred into the partnership;
• identify the transferor’s partnership share immediately before the partnership transfer;
• compare that share with the position immediately after the transfer;
• apply the correct proportion depending on whether the transferor leaves the partnership entirely or only reduces their share.

You then need to consider the linked transaction consequences, because the deemed land transaction and the original land transfer are treated as linked.

Example

This is only an illustration of how the rule works.

A transfers land to a partnership. The special partnership rules apply to that transfer. Later, under pre-existing tax avoidance arrangements, A transfers part of A’s partnership interest to another person. Ignoring this anti-avoidance rule, that transfer of the partnership interest would not itself be a chargeable transaction.

If the statutory conditions are met, the later transfer is treated as a land transaction. The chargeable consideration is worked out by taking the market value, at the date of the later transfer, of the interest in land originally transferred to the partnership, and then applying the relevant proportion. If A remains a partner but A’s partnership share falls, the relevant proportion is the amount of that reduction. If A ceases to be a partner altogether, the relevant proportion is A’s whole partnership share immediately before the transfer.

The original transfer of land into the partnership and the later transfer of the partnership interest are then treated as linked transactions.

Why this can be difficult in practice

The hardest issue is often whether the arrangements are properly characterised as tax avoidance arrangements within the statutory meaning. That is a legal and factual question. The source does not set out the full test, but instead refers to section 31 LTTA. In practice, that means the conclusion may depend on the purpose and design of the arrangements, not just on the formal steps taken.

There can also be difficulty in identifying exactly whose transfer is caught. The rule is not confined to the original land transferor. It can also extend to a person becoming a partner in return for transferring land, and to connected persons. That means the relevant parties and relationships need to be mapped carefully.

Valuation can also be sensitive. The legislation uses market value at the date of the partnership transfer, and the valuation is of the interest transferred by the original land transfer. That may require careful identification of the relevant interest and its value at the later date.

Finally, the linked transaction treatment can alter the tax result in ways that are not obvious if each step is viewed separately. A reader should therefore look at the whole sequence, not just the later partnership transfer on its own.

Key takeaways

• A transfer of a partnership interest can be treated as a taxable land transaction if it follows a transfer of land into a partnership under tax avoidance arrangements.
• The deemed charge is based on a proportion of the market value, at the date of the later transfer, of the land interest originally transferred into the partnership.
• If the rule applies, the original land transfer and the later partnership transfer are treated as linked transactions.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Tax Rules for Partnership Transfers Involving Tax Avoidance Arrangements

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