We accept that there are a few articles in this publication on SDLT, but given it is a property tax and, seemingly, very misunderstood, it is worth highlighting some of the areas where, without the right advice, you will end up overpaying tax.
The partnerships section of the SDLT legislation is notoriously complicated. It includes formulae on how to calculate chargeable consideration and uses such phrases as "relevant owners, corresponding partners, and sum of lower proportions". It's enough to require a cold flannel and a dark room.
To try to put it simply, where property comes into or out of a partnership, the chargeable consideration is calculated by reference to the percentage movement in ownership of the property.
As an example, Mr A, Mr B and Mr C are in partnership together, each with a one third profit share. The property is taken from the partnership by Mr A when its market value was £1m.
So, before the transfer, the partners had a third each. Afterwards, Mr A had 100%. Therefore, his percentage interest has increased by two thirds. Chargeable consideration is then calculated as two thirds of £1m, or £666,666.
Of course, transactions are never quite as simple as a Property Focus example and there are many nuances, particularly when families and companies are concerned. But this is why it is incredibly important to seek advice when partnerships are involved (and remember, you don't have to call it a partnership for it to qualify as one).
We had a case recently where the incumbent accountant informed a client that, on a transfer of property, valued at £6.5m, from a partnership to a company, they would be faced with a £260,000 SDLT bill. We had a look at the parties involved and disagreed.
We put our analysis to HMRC who confirmed that the chargeable consideration on the transfer was, actually, £65,000, therefore falling within the nil rate band threshold, resulting in a nil SDLT liability. Suffice to say the client was quite pleased with our advice!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
