If you have recently entered into or started a partnership and are planning to invest in or purchase property as a partnership then you may require the help of a team of tax specialists such as CapEx Tax.
The rules and regulations regarding stamp duty land tax for partnership deeds are complex and there are lots of provisions to meet especially when transferring a partnership asset to another partnership or where there are limited partners involved and on stamp duty liability when a person enters into a partnership after a purchase is made.
We have written a guide to partnership stamp duty land tax to help you understand these complexities and be prepared when buying property assets whilst associated with a partnership.
Stamp Duty For A Partnership Deed
A partnership can only exist if three main requirements are met, these are as follows:
- There must be a business.
- The business must be carried on by two or more persons in common.
- The business must be carried on with a view to profit.
It is very important for all partnerships to keep an updated account of recorded transactions and an accurate paper trail in order to strengthen their claims with HMRC. All property owned by the partnership must be registered in the partnership’s name and not registered in a sole name as this can weaken an HMRC claim for a partnership stamp duty land tax refund.
There are two categories that apply to a partnership stamp duty land tax transaction these are:
- When a property is transferred into or out of the partnership either as a contribution, acquisition or property sale.
- When there is a transfer of interest in a partnership including a change in shares between partners such as when a new partner joins the partnership or one leaves the partnership.
These rules also apply to foreign partnerships who are purchasing property in England or Northern Ireland. Responsibility for payment of partnership stamp duty land tax is counted as a joint liability for members of the partnership upon the effective date the purchase was made.
Transfer Of Land Into A Partnership
Stamp duty land tax is payable when a ‘land interest’ is transferred into a partnership, this can be done in one of several ways:
- An acquisition of a land interest from a third party;
- A contribution of a land interest by an existing partner;
- A contribution of a land interest by an incoming partner;
- Or, a contribution of a land interest by a person connected with an existing or incoming partner.
Acquisition of a land interest from a third party
This is the most simple kind of land interest transfer, an acquisition of land or property from an unconnected third party to a partnership is seen to be an acquisition of land or property by each of the existing partners in the partnership based on the number of shares they hold within the partnership.
The full partnership stamp duty land tax calculation is worked out at the partnership level. The liability for the payment of stamp duty land tax is then split between the partners equally and each of them is separately liable to comply with the requirements of stamp duty land tax.
Each member of the partnership will also be able to access any stamp duty land tax reliefs that are specifically available to them. For example, if one of the partners in a partnership is a charity, they can separately apply for stamp duty charity relief for their part of the partnership stamp duty land tax (SDLT) payment.
Transfer of land out of a partnership
A sale of partnership property to a third party is simple as stamp duty land tax is charged on the third party in the normal way. However, when a property is transferred from a partnership to a partner (or to a person connected with a partner), the stamp duty land tax is calculated using the market value of the property.
It is important to note that any changes in partners or in partnership shares do not give rise to a charge to SDLT unless the partnership is a property investment partnership.
Stamp Duty And Associated Companies Relief (Group Relief)
Partnerships were once not considered to be ‘body corporates’ and so were unable to form a group to claim SDLT group relief. However, HMRC has since updated their guidance and now states that it accepts that a partnership can act as the parent in a group structure but it cannot act as a subsidiary in a group for stamp duty and associated companies relief more commonly known as group relief.
However, if claiming group relief a stamp duty land tax charge can arise within three years of a transfer of a property by a partner into a partnership, if the contributing partner:
- Withdraws money or money’s worth from the partnership (not income)
- Reduces his/her partnership share; or
- Ceases to be a partner.
There might also be cases of double taxation if a property is transferred into a partnership, and then within three years it is sold to a third party, and the sale proceeds are withdrawn from the partnership. Stamp duty land tax would be payable by the third party in the normal way, and then a potential further SDLT charge can be payable by the partner who withdraws the sales proceeds from the partnership.
Partnership To Limited Company Stamp Duty Land Tax
Over the years there have been many property partnerships being incorporated into limited companies. In most cases, the incorporation into a limited company will have been for genuine commercial reasons as well as for prudent long-term tax planning.
However, the change to interest relief for residential property lettings has increased the number of landlords looking at the incorporation of their property businesses. The one-off costs of partnership to limited company stamp duty land tax on the transfer of a property partnership to a limited company can often be an obstacle.
The partnership to limited company stamp duty land tax legislation contains a process, which if the relevant requirements are met can result in no partnership to limited company stamp duty land tax being payable on the transfer. However, the 0% charge will apply where the entire partnership property portfolio is transferred to the limited company in exchange for shares.
Due to the increased interest in partnership to limited company incorporations, HMRC will want to identify any cases where it can be seen that the formation of a partnership is done to avoid the payment of stamp duty land tax.
How Can CapEx Tax Help?
Here at CapEx Tax we have a team of valuable tax professionals who can help you to collect the correct documentation and evidence that is needed to make a partnership stamp duty land tax claim with HMRC. A partnership stamp duty land tax claim can be lengthy and needs to be correct in order for the process to be completed as quickly as possible. We can also help to advise you on making a claim and how to start the process. So, if you are looking to make a claim for a stamp duty land tax refund or group relief get in touch with us today so that we can help.